The Fed Statement shows a total lack of confidence that the 3.5% GDP growth can be sustained. They are endorsing the dollar carry trade, which fuels commodity speculation, and inflation expectations.
The FOMC says that economic activity continued to pick up since their September meeting. Conditions in the financial markets were roughly unchanged, which is surprising given comments by Bernanke and Geithner that conditions were improving. Cheerleading without confidence that the team can win!
The FOMC says that household spending expanded but remains contained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit. This is why community and regional banks led the market lower in late trade on Wednesday.
The FOMC says that businesses are still cutting back on fixed investment and staffing, though at a slower pace. “Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.” No confidence just as on September 23, the prior FOMC meeting.
Fed Policy will re-ignite inflation, as shown in charts for gold, copper and crude.
The Fed ignores the charts for gold, copper and crude oil, the same mistake the Greenspan / Bernanke Feds have made since 2000. Fed Policy was a cause of “The Great Credit Crunch.”
The Funds rate remains zero to 0.25% for an extended period endorsing the dollar carry trade, which fuels commodity speculation and hence future inflation, which is a dumb thing to ignore.
Seeds of inflation are planted in the charts for commodities, which the FOMC always ignores, which leads to failed Fed Policy.
Gold – reached a new all time high at $1098.5 on Wednesday, which is above my quarterly pivot at $1094.4, but shy of my semiannual resistance at $1101.9.
Copper – is above its 200-week simple moving average at 294 with monthly resistance at 324.5. Weekly support is at 286.2.
Crude oil – is above its 200-week simple moving average at $75.45 with a weekly pivot at $79.17 and quarterly resistance at $83.16.
No bull market with a bear market in community and regional banks.
The America’s Community Bankers Index (ABAQ) – is approaching its July 10th low at 131.76, and is down 27.3% year to date. The daily chart is oversold, but the 21-day simple moving average at 146.40 is below the 50-day at 147.74, and these are converging towards the 200-day at 143.63. This is the source of future bank failures.
The Regional Banking Index (BKX) – is down 5.8% year to date with the S&P 500 up 15.9% year to date. The BKX has become oversold with the 21-day and 50-day simple moving averages crossing into negative territory as resistances at 44.75 and 46.12. The 200-day is support at 36.90.
My interpretation - No Job Creation = No end to Recession, and banks lead the return to the Multi-year Bear Market that began in October 2007. ABAQ peaked in December 2006, while BKX peaked in February 2007. I first called for Recession in 2008 / 2009 and the Bear Market as March 2007 began.
Disclosure: I Hold No Positions in the Stocks I Cover.