Fed to Keep Doing What it Has Been Doing

The Federal Reserve has held its 2020 year-end meeting, promising to keep on doing what it has been doing.

Which reminds us of the old saying that if you keep doing what you have been doing, you are going to keep getting what you have been getting.

In this case, the Fed intends to keep buying financial assets in the afternoon with money that did not even exist in the morning.  

This is exactly what the Fed has been doing that drove gold to new all-time highs in US dollar terms and in virtually all the other currencies in the world in 2020!

At the conclusion of its two-day December meeting on Wednesday (12/16), the Fed Open Market Committee announced that it planned to continue buying $80 billion a month of US treasury bonds and $40 billion a month in mortgage-backed securities.

The committee vote, to keep purchases at the rate of $1.44 trillion a year with money conjured up out of nothing more than a digital keystroke, was unanimous.  It is a continuation of the money-printing rate that the Fed launched in June, following a even bigger two-month spree in March and April.  The Fed bought $1.5 trillion in Treasuries during that period, effectively funding the entire US deficit during that period.  

Altogether, monetary policies drove the price of gold to an all-time high over $2,000 an ounce in August.  

In a follow-up press conference, Fed chairman Jerome Powell said the Fed would increase its purchases if the recovery slows.  “If progress toward our goals were to slow, the guidance would convey our intention to increase policy accommodation through a lower expected path of the federal funds rate, and a higher expected path of the balance sheet,” said Powell.

The Fed’s news release including this statement: “These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”

The Fed also agreed to maintain the Fed funds interest rate at a target level of 0 to 0.25 percent.

The Fed has a tiger by the tail.  It has learned that it cannot stop inflating conditions of money and credit without tanking the stock market.  Yet it can’t keep doing what it has been doing without driving the growing global de-dollarization movement.

Either path, higher inflation, or a collapsing stock market with drive gold prices higher.