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Who’s In Charge – Fed Doves or Hawks?

Monday, 15 October 2012
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Published in From The CEO

Just when we thought everything was alright.  Few breaths were taken in the world financial community last September 13 until Ben Bernanke surfaced from the Fed FOMC’s annual meeting on monetary policy at Jackson Hole, Wyoming.  Then he made his fateful announcement:  The Federal Reserve would now execute its mandate to print money as it deemed necessary to boost U.S. employment figures in particular, and the economy in general.  Welcome America, to QE3!

Once Bernanke made his announcement, several things became clear:  a) the price of gold would increase, but not without some speed bumps along the way. b) monetary easing would need to catch on internationally. c) gold would require help from additional economic events to push it past the $1,790-per-ounce resistance level.


What remains unclear is how the Fed makes its decision about how much inflation it would allow to slip into the economy and who exactly in the Fed is voting to keep the presses running, and who exactly is voting to hold them back or stop them altogether.  As it turns out, the twelve board governors are not a unanimous gaggle of geese.  There’s some dissension in the ranks; so they’re more like a fluttering bunch of doves and hawks, squawking over the nation’s tolerable rate of inflation.

According to a Reuters report Friday, all is not peachy keen at The Fed.  Since the U.S. is recovering slowly, the official position is that the Fed would continue to buy bonds until the economy improves “substantially.”  Depending whether you’re a Fed hawk or a Fed dove, you ‘ll probably come up with a different definition of “substantially.”  (Figures don’t lie, but liars figure).  Minneapolis Fed President NarayanaKocherlakota feels comfortable with a 2.25-per-cent rate of inflation.  Chicago Fed dove Charles Evans, on the other hand, can sleep nights as long as the inflation rate stays under 3 per cent.

Than we have Richmond Fed President Jeffrey Lacker who feels that what his colleagues are putting forth is all feed for the birds. According to a Bloomberg report Friday, Lacker asserts that the QE3 “will increase inflation risks and complicate the pull-back from record stimulus while not fueling economic growth.”  In a speech at the University of Virginia in Charlottesville, Lacker said that “adding to our balance sheet increases the risks we’ll have to move quickly when the time comes to normalize monetary policy and begin raising rates.”  Lacker doesn’t believe the Fed should be sainted with the authority to meddle with rates in the first place.  Moreover, he has little faith in Fed action’s ability to impact unemployment rates.

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Trevor Gerszt

Trevor Gerszt has been passionate about gold since childhood. Growing up in South Africa, the world’s second largest gold producer, Gerszt spent his youth collecting gold coins. Surrounded by a family of experienced coin collectors, he gained valuable insight about the precious metal.