The latest FOMC statement was released on July 31, 2013. You can compare it to the June statement. As usual, there was very little change in the overall statement. Other than a few changes in wording, there were really only two differences between this statement and the last.
The first difference comes in the first paragraph. There was an acknowledgement that “mortgage rates have risen somewhat”. However, there was no change in policy because of this or even any further detail provided on this subject.
The second difference was in the second paragraph. It is in regards to inflation, which is really referring to price inflation and not monetary inflation.
In the FOMC’s June statement, it said: “The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
In the FOMC’s latest July statement, it said: “The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.”
So there you have it. I wonder if this change was inserted by Professor Bernanke, the student of the Great Depression. The Fed is worried that inflation below 2 percent could pose risks to economic performance. Yes, if only I could pay 5 or 10 percent more at the grocery store, instead of a mere 1%, economic performance would be so much better. With the stagnant or falling wage rates, we must hope that Professor Bernanke can make life more expensive for us in order to help the economy (end sarcasm here).
Other than that, there was essentially no change. The most important piece stayed the same where it says the following: “the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”
So the Fed will keep its policy of expanding the monetary base by approximately $85 billion every month. This comes out to an annual expansion of about $1 trillion. In 2013 alone, the Fed will have created more new money than what was done from 1914 to 2008. We must not forget that the adjusted monetary base was only just above $800 billion in 2008. It is now over 4 times that, with the Fed continuing to press on the accelerator.
In conclusion, we are still heading over the falls and Bernanke and company aren’t even trying to slow the boat down. But Bernanke is going to try to jump out of the boat at the end of January 2014. He might get out in time, but that doesn’t save the rest of us. And I sure wouldn’t want to be the next captain taking over.