The Votes Are There For QE 2, Despite A Few Voices Of Reason

It seems that this week was the official "Fed Speak Week" when all Fed presidents make pubic statements regarding the economy and whether more QE is needed. Some have openly advocated more QE, while others have said the US economy was in good enough shape to grow on its own without more QE. The major problem for supporters of monetary sanity is that all of the critics of more QE are not voting members of the FOMC (Fisher and Plosser). All that matters is what current voting members want. Below is a list of current voting FOMC members and there stated or implied views on QE 2 from recent statements:

Zimbabwe School/Anti-Dollar

1. Ben S. Bernanke--Zimbabwe Ben loves his money printing
2. William Dudley---believes that money printing can reduce the unemployment rate (LMAO).
3. Eric Rosengren---delusionallly believes that money printing stimulates the economy.
4. James Bullard---used to be somewhat hawkish, but has completely changed his tune.
5. Sandra Pianalto--claims inflation is too low, despite gold $1300, oil at $80, and $3.50 copper.
6. Daniel Tarullo--always votes with the majority.
7. Elizabeth Duke--had concerns about reinvesting MBS, but voted for it in the end.

Might Be On the Fence (will probably vote with majority)
1. Kevin Warsh--potential wildcard. He has said the economy was improving and that monetary tightening may be needed. 

Lone Member For Monetary Sanity

1. Thomas Hoenig--The only reponsible member of the FOMC. He has learned from his mistakes and does not want another asset bubble.

Summary: Either way you splice it, Bernanke has the votes for QE 2, the only question is of the timing (November or December). It does not matter whether the decision is 8-1 or 7-2 in favor of QE 2. The Zimbabwe School is in complete control. RIP US Dollar and hello $1500 gold.  
Here are some recent statements from voting FOMC members:

Thomas Hoenig, Kansas City Fed (good guy)
Voting against the policy was Thomas M. Hoenig, who judged that the economy continues to recover at a moderate pace. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth. In addition, given economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from its securities holdings was required to support the Committee’s policy objectives.
Sandra Pianalto, Cleaveland Fed
I also expect underlying inflation to remain near its current low level through next year, lower than the roughly 2 percent rate that I see as consistent, over the long run, with the Federal Reserve's objectives. As a Federal Reserve policymaker, I am focused on achieving our long-term policy objectives of price stability and maximum employment.

If further policy accommodation is needed to promote price stability and the continuation of the economic recovery, we have options available to us. We are in uncharted waters. History does not provide a complete guide for the unconventional policy tools we are using, which is why it is important that we continue to examine the costs and benefits of these tools. If additional accommodation is needed, I want to be sure that the framework we employ is an effective one. I am confident that the Federal Reserve can effectively respond to evolving economic and financial developments.
Eric Rosengren, Boston Fed

While the economy is growing, it is currently growing too slowly to significantly reduce the unemployment rate or stem disinflationary pressures created by the high degree of slack in the economy.  While fiscal policies may be the most effective way to stimulate the economy when short-term interest rates approach the zero bound, unconventional monetary policies provide additional policy options. Of course, policymakers need to carefully weigh the benefits and costs of unconventional monetary policy – some of which I have tried to share with you today.  Yet all in all, my firm view is that it is important that policymakers be open to implementing policies consistent with achieving full employment, and an appropriate level of inflation, within a reasonable time frame.
William Dudley, New York Fed (the bankster's represenative)
Currently, my assessment is that both the current levels of unemployment and inflation and the timeframe over which they are likely to return to levels consistent with our mandate are unacceptable. In addition, the longer this situation prevails and the U.S. economy is stuck with the current level of slack and disinflationary pressure, the greater the likelihood that a further shock could push us still further from our dual mandate objectives and closer to outright deflation.

We have tools that can provide additional stimulus at costs that do not appear to be prohibitive. Thus, I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.

Black Swan Insights


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