“On the one hand, the Fed acknowledges higher commodity prices and rising inflation. Yet they go on to say that inflation trends are "subdued" and inflation expectations are "stable" - and those are the exact words they use. I mean, what can they possibly be looking at to reach those conclusions?
Then they say that they will keep interest rates low, but the reality is they need to be raising interest rates to fight the growing inflationary pressures, just like Volcker did when he was Fed chairman thirty years ago.
But here's the biggest inconsistency, the Fed plans to end its $600 billion quantitative easing program on schedule at the end of June. But the federal government continues to run horrendous deficits, forcing it to borrow record amounts of money. Consider this, since the Fed began QE2 last August, the federal government's debt has increased about $900 billion. Over $500 billion of that debt has in effect been borrowed from the Fed, courtesy of the Fed's printing press. Now I ask you, with the federal deficits running at or near record levels, who is going to buy all of the debt the federal government will be issuing after June 30th to fund its never-ending deficits?
Clearly, something has to give. There are only two choices to stop the dollar from the waterfall decline you and I have been talking about and expecting. Either the Fed raises interest rates, or politicians stop spending and it doesn't look like either one of those is about to happen. In fact, looking at the Dollar Index and precious metals markets as we speak, the waterfall decline in the dollar has begun. The Dollar Index has broken below all of its previous lows except for the last one at roughly 71 on the index. When that gives way you could see incredible panic selling ensue.
The bottom line is the market is calling the Fed's bluff. Investors don't believe the Fed will stop its purchases of US government debt on June 30th and for what it is worth, I don't either.”
James Turk, via Kings World News