The Fed Statement shows an economic theme that expansion is proceeding at a moderate pace with the labor market improving gradually. The Fed recognizes that commodities prices have spiked since last summer and that the rise in the price of crude oil has contributed to an inflation pick-up in recent months, but the FOMC believes that inflation expectations remain stable and that underlying inflation remains subdued. The FOMC will continue to expand its holdings of U.S. debt as announced in November. This $600 billion QE2 will end on June 30 and then the Fed will re-invest maturing Treasury and MBS holdings, keeping the expanded balance sheet bloated. In addition, the Federal Reserve will maintain the federal funds rate at zero to 0.25 percent for a continued extended period. Wall Street responded with a new round of commodity and equity speculation as the dollar got whacked.
Fed Statement – Status Quo as QE2 Set To End on June 30 - The Fed's theme on the economy is that expansion is proceeding at a moderate pace with the labor market improving gradually.
My focus has been the housing market and real estate in general and the impact on the banking system. The Fed admits that investment in nonresidential structures remains weak, and that the housing market remains depressed. The key to economic growth on Main Street USA is construction spending, which is 8.8% lower than a year ago.
The Fed recognizes that commodities prices have spiked since last summer and that the rise in the price of crude oil has contributed to an inflation pick-up in recent months, but they wrongly believe that inflation expectations remain stable and that the underlying inflation remains subdued. Americans on Main Street are struggling with a lower standard of living thanks to the Federal Reserve.
The FOMC continues a policy that helps Wall Street, while Main Street remains left out!
My Fearless Prediction of the Week on April 18 – Confirming a "double top" for stocks between the February 18 highs and the April highs requires weekly closes below the five-week modified moving average, which was 12,200 for the Dow Industrial Average. Otherwise stocks will move higher into the April 27 FOMC meeting, which we saw in yesterday's trading.
Stocks are now trading under a ValuEngine Valuation Watch – 61.8% of all stocks are overvalued with 16 of 16 sectors overvalued, 7 by double-digit percentages. A ValuEngine Valuation Warning occurs when 65% or more of all stocks become overvalued. This last occurred on February 18.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.