The Fed: Let's Try For The Best Of Both Worlds

Minutes of the late Jan. FOMC meeting show a Fed planning to keep the large QE program
going, but in deference to the inflation hawks, plans are afoot to look over alternatives
which feature possible modifications that could wind up reducing the $ volume of QE.
Has the Board lost its collective nerve? Well, not quite yet as I will endeavor to point out.
First, let me say uneqivocally that I regard this kind of ambivalence as bullshit. The
instruments the Fed has at its disposals are large hammers and not the tools one could use to
fine tune anything. You either need the bigger hammer or you do not.

The game here as I see it is that the Fed desires to push QE 4 along but is afraid that strong
liquidity flow into the financial system could weaken the dollar and set off hefty speculation
by financial types in the oil and commodities markets. I doubt the Fed stays up late nights
worrying about what the prices of gold and silver might do except in so far as rallies in
PMs  might re-inforce the speculation in oil and commodities. The Fed's concern here is that
a run-up in commodites will accelerate inflation and pinch real incomes which are already
under pressure from the recent increase in the payroll tax. By crying wolf as they allow the
beast to roam, the FOMC hopes to keep folks from running up the prices in the oil / fuels
complex via concern that the Fed may curtail QE and leave the guyz with unsustainably long
speculative positions. The Fed has spooked the PM market by adding strings to the QE $
program, but oil and gasoline players were more nervy and so the FOMC has now trotted out
its QE curtailment in "potentcy" as Aquinas might have said. This could be clever stuff as
long as the Fed does not have to cry wolf but rarely.

I see the progress the economy has made off its lows in 2009, but I am not yet convinced
economic expansion has reached self sustain mode. therefore, I am still happy to see the Fed
with a robust QE program.

The Fed has punished the gold players since latter 2012: GLD Gold Trust ( Yes, a big
test of support could lie ahead).