FED Open Market Committee Meeting April 25, 2012 - Quick Reaction

Fed Chairman Bill Bernanke

The Fed Open Market Committee concluded it's meeting today. It raised it's economic outlook and said to be more optimistic about unemployment, due to the fact of the large improvement the last few months.

The Fed also predicts that the economy will grow between 2.4 and 2.9 percent, which compared to the numbers predicted in January, is a .2 percent increase. In which case, the Unemployment rate will drop to about 7.8 percent...which will also have looking at a inflation rate at below 2 percent.

This all sounds good, except when you get to the part that seven open market committee members, a little more than half, predicted a inflation rate hike.

All of this information is relevant because it will help the Fed decide whether to start their third---yes third round of Quantitative easing to boost the economy. If you don't know what Quantitative easing is, it is essentially the government increasing the money supply by flooding financial institutions with capital (government buying and selling their own bonds). Investopia will help me out with the rest.

Central banks tend to use quantitative easing when interest rates have already been lowered to near 0% levels and have failed to produce the desired effect. The major risk of quantitative easing is that, although more money is floating around, there is still a fixed amount of goods for sale. This will eventually lead to higher prices or inflation.      
(Hat tip investopia.com)

I cant say I am on board with this type of thinking. It's been well documented in the numerous essays that I have wrote about the Faults in Bill Bernanke's system, but I honestly think the man is trying his best. We have to understand that we've done this to ourselves, and there isn't much we can do but believe in the Free Market economy that we have, and work ourselves out.

Bill Bernanke also expressed many thoughts of the holes that are evident in the economy. Such as the housing market. It is written off by the Open market committee as "Depressed". Pair that with the student loan debt (soon to be) bubble, we could be looking at a 2008-esque economy.

After every thing was said an done, The Committee voted 9-1 to keep rates low, including the discount rate, which sits currently at .75 percent.