In a similar fashion, Fed Chairman Bernanke can demonstrate to his very vocal critics such as Sarah Palin and Ron Paul that his QE1 and QE2 programs did yield the intended results, despite the plethora of all-too-eager naysayers who see nothing but the Treasury’s printing presses allegedly running at 100% on a 24/7 basis, and continue to warn the public about the US turning into a Zimbabwe-like inflation mess imminently. Bloomberg News relays that, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York, “quantitative easing was a key factor in taking deflation risk off the table. It certainly helped bolster longer-term inflation expectations, and it was a factor that contributed to the rally in the stock market.”
Avoiding deleterious outcomes, whether they involve deflation (Japan) or inflation (China), depression (Japan) or runaway growth (China) appears to have also been on the minds of India’s central bankers overnight. The RBI’s policy makers hiked interest rates for the eighth (!) time in one year this morning after they raised their inflation forecasts for the second time in a trimester. Bringing inflation under control is now Job #1 for India as well. Last week, Chinese Premier Wen declared that Public Enemy No.1 in China is the inflation spiral.
While the US Fed has not yet signed on to any specific methods that it might use in order to undertake its exit from accommodative policies, it has already been (albeit slowly) leaking certain key aspects about its ability to drain the previously expanded reserves. Such implements include the increase in the number of counterparties to be used for drainage. Fed President Dudley reinforced assertions that the US central bank has the necessary “tools” (i.e. hiking interest rates, tightening credit, etc.) when they become needed, and he also underscored the fact that QE2 has helped the US economy.
Finally this morning, a quick roundup of pertinent US economic statistics (and there were plenty on offer): US jobless claims filing fell to 385,000 last week (the four-week average is still at its lowest level since 2008). US consumer prices rose 0.5% in February (gasoline prices were blamed, mainly) while core inflation was still subdued, showing a 0.2% gain on the month. Both of those figures were largely in line with economists’ expectations. However, US industrial production unexpectedly fell by 0.1% last month, even as the index of leading economic indicators (LEI) recorded its eighth consecutive gain, of 0.8% in February (slightly under consensus forecasts but still indicating a stronger recovery in progress). In fact, the Philly area manufacturing activity rose by the most since 1984 according to this morning’s slew of data. The Dow Jones average picked up 152 points’ worth of steam and appeared to have a better day on tap, for a change.
Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America