Submitted by Dominique Dassault of Global Slant
The Next Move For The Fed: "Trial Balloning" QE4
With the idea of a Federal Reserve interest rate hike quickly fading the only real question left to ponder is what is their next move…if any?
Before that question is answered let’s consider the current economic environment in the United States. First of all Q1 GDP is likely to be much softer than current expectations. Most of the economic data point to it i.e. throw a dart at the Q1 economic calendar and you are sure to hit a soft statistical series. Key to this trend is the $88B Q4 inventory build that is not being depleted. Wholesale and business inventory data from Q1 are sluggish which is not entirely unexpected. More importantly though, Q1 wholesale and business sales are dramatically lagging this anemic inventory growth suggesting a further bulging of finished goods for Q1. This is not a good recipe for Q1 economic growth…or the Q2 outlook.
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Furthermore the dollar has launched in Q1 [perceived Fed tightening of rates], effectively, hamstringing exports [by making them more expensive] while importing deflation from around the globe. The continual jawboning, from the Fed’s own FOMC members and Treasury Secretary Lew, that a well bid dollar equates to signs of economic strength and confidence in the U.S. economy is totally bogus. The dollar’s strength can be primarily assigned to the currency diluting policies of both the ECB and the Bank of Japan…both of which are still at the early stages of open ended debt monetization strategies. Add to that the twenty-four separate central bank interest rate cuts in the first three months of 2015 and, ceteris paribus, the dollar strengthens…especially as the world’s reserve currency [at least for now].
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