Monetary Policy

Fed Funds Target Rate
The FFR% stays at 0 - .25%. We are currently in the fourth year of economic recovery
in the US and it is interesting that over this entire time frame my short term interest rate
indicators have never fully aligned to support raising the FFR%. There has not been a
case to boost short rates for cyclical reasons based on indicators that have worked like
a charm for over 50 years.

Liquidity & Economic Growth
The Fed is continuing its plan to expand its balance sheet by about $85 bil. a month via
Treasury and agency securities. That adds up to $1.02 tril. for a 12 month period and is
equal to about 8.1% of my broad based measure of US financial liquidity. This is a big
program which should bolster the US economy substantially. Started in late autumn of
last year, the program has had a mildly  beneficial impact on the US economy. For
example, For the 12 mos. ended Nov. 2011, industrial output expanded by 2.5%. Since
then, production has increased at a 3.0% annual rate. Moreover, the banking system has
turned more cautious with lending operations over the past 4 - 5 mos.

The Fed's game plan is for a cumulative build in economic growth as the large
injections of liquidity well into the system. But, progress has been constrained fiscal
policy tightening, a conservative turn in the banking system and a business sector
reluctant to hire, pay decently and invest. At today's FOMC meeting, a nervous Fed
thought it appropriate to remind folks that it can raise as well as reduce the size of the
QE program.

I was pleased to see that the Fed has layed the blame for slow economic progress at
the door of fiscal policy (both Obama and the Congress). If over $1 tril. a year of new
liquidity is going to produce just a paucity of progress, then we all should pressure our
elected officials to develop and implement policies to grow and not cut jobs rather
then extend reduced circumstance through continued austerity.