With stocks and gold on the move, here is a look at something that may wow readers plus the FOMC.

September 16
 (King World News)
Peter Boockvar:  Ahead of the FOMC statement and press conference today, I’m not going to repeat my usual critique of Fed policy but will instead quote an ex Fed Governor and let him do it himself. In a letter to the WSJ editor a few weeks ago commenting on an editorial on the Fed, Robert Heller, a Fed Governor from August 1986 to July 1989, said this:

“The congressional mandate as stated in the Federal Reserve Act of 1977 is for the Fed to provide for ‘stable prices’ – not 2% annual price increases. A 2% inflation will double the price level every 35 years. The late Paul Volcker said that, ‘stability at 2% is an oxymoron,’ and he was also fond of saying: ‘Once it’s (inflation) out of the bottle, there is no way to put it back in.’ He learned that from experience.”

He finished by saying:

“The Fed should heed the wisdom of monetary policy giants like Paul Volcker and Milton Friedman and provide for stable prices in its policy decisions and not target an average inflation rate of 2%, which will result in an ever-increasing price level.”

Either way, we’ve seen over the past 10+ years that pinning rates at zero or below and buying up trillions of bonds doesn’t result in higher inflation nor faster economic growth. It’s certainly not clear now why the Fed thinks by doing more of this type of policy is going to get a different result. Low rates forever doesn’t stimulate behavior that wouldn’t have happened otherwise…

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That said, combining this monetary actions with trillions of fiscal deficit spending might have a different outcome and inflation might be the result to the detriment though of real wages and standards of living. Thus, we should then view current Fed policy as just financing US government deficit spending and of course doing their best to lift asset prices rather than being a direct stimulant to economic growth. I also think the Fed should be tying policy in the coming quarters more to the effectiveness of a vaccine since Covid is the only reason we’re in this situation to begin with.

Lawrence McDonald, Former Head of Macro Strategy Société Générale:
  Month-over-Month vs Year-to-Date

Palladium: +8.5% v +22.8%
Copper: +6.4% v +10.2%
Nickel: +6.0% +8.7%
Zinc: +5.5% v +8.5%
Tin: +3.2% v +5.8%
Alum: +2.3% v -1.7%
Platinum: +1.5% v +1.0%
Cobalt: +0.1% v +2.2%
Silver: -0.8% v +53.2%
Gold: -1.0% v +30.0%


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