Wednesday, October 15, 2014

Fed Official: We Might Consider Another Round of QE

Score another one for Jim Rickards. He predicted that the Fed would be willing to reverse course and go back to QE by early next year. Most have assumed that would never happen. But, the San Francisco Fed Chief confirms Rickards is correct in this CNBC article. Below are a few quotes from the article and then a comment.

"The head of the San Francisco Federal Reserve Bank on Tuesday said he would be open to another of round asset purchases if inflation trends were to fall significantly short of the U.S. central bank's target."

"Although he said it would take a big shift in the U.S. economic outlook for the Fed to restart its bond buying, John Williams said the possibility of a new downturn in Europe and other global economic woes pose a risk to the United States."

"If we really get a sustained, disinflationary forecast ... then I think moving back to additional asset purchases in a situation like that should be something we should seriously consider," Williams said in an interview with Reuters."

"Europe, which faces an elevated risk of a new recession and, according to the International Monetary Fund, a significant chance for an outright bout of deflation, has emerged as a central concern at the Fed."


My added comment: Recall  a phrase we use here on this blog. A problem anywhere can lead to a problem everywhere. San Francisco Fed Chief Williams shows that this phrase is absolutely correct (downturn in Europe poses risk to the US). Note also this very dovish statement coming from a Fed Governor as the US stock market has taken a nose dive and fell through some key support levels. 

As we have noted here, the IMF has been issuing a number of warnings about lack of GDP growth and the threat of deflation as can be seen in the links to the right on this blog. Here are two recent ones:

IMF Warns Global Economy at Risk

IMF Report - Rising Financial Risks in the US

We also have oil dropping like a rock and gold and silver still at lows. Wages are not increasing either. The US dollar is moving higher. All these are "disinflationary" signals to the Fed.

Udpdate - Added note:  This morning several economic reports add to the evidence of "disinflation" and a possibly slowing US economy. Here are the links:

Empire State Manufacturing Index Falls

Retail Sales Fall

PPI Index Actually Falls

Fed's Hawkish Bias Completely Unwound

Falling Oil Prices Complicate Central Banks Fight Against Deflation

Update 10-16-14: Fed's Bullard Says they may need to delay ending QE

Added Update: Jim Rickards mentions our blog post here on his Twitter today (10-15-14).
Thank you Jim!

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