**[investwise]** Is The Fed In Panic?

 

The Federal Reserve Bank has confirmed it will be keeping short-term rates at the current low 0.25. The Fed even suggested that these rates will remain until 2011. Look, it didn't actually surprise anyone. What did catch the market by surprise was the fact the Fed is quite wary of future economic growth. In a briefer than usual statement, the Fed acknowledged that employers are 'unwilling to add to the payrolls' and that housing starts 'remain at a depressed level'.  This short and sweet release has had the press in a frenzy, yet again trying to predict what the Fed will do next. But it's beginning to look like there's not a whole lot it can do. This is the problem. The Fed doesn't want to look like it's panicking about the economy. But clearly, the Fed governors ARE starting to panic. It's like they're putting on a brave face so they only appear 'cautious', when really, the Fed aren't quite sure what to do next. And, further proof that the Fed hasn't got any direction at the moment, this press release has dragged international markets down for the past two days. However, there is some small hope at the Fed. Thomas Hoenig, the President of the Kansas City branch of the Fed, has continued to argue against low interest rates. He wrote that 'exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability.' It's a fancy way of saying that the low rates will create another 'boom and bust cycle'. Now, this is the fourth session in a row that he has been the lone voice that disagrees with these next to nothing rates. And because he continues to dissent at the meeting, the media have dubbed him the 'Rogue Fed'. Krugman Still Bonkers Earlier in the week, the Nobel Prize winning economist Paul Krugman hit the headlines again. But his statement had all of us very concerned here at Fitzroy Street. 'To short-change stimulus now for the sake of the long-run budget just doesn't add up,' he said. Basically, he's saying the US needs to keep pumping stimulus into the economy so it doesn't fall over. But here's the kicker, the US doesn't have much more money to pump into economy. In fact its deficit is massive and, right now, there's not on quick fix solution to 'save' America from its debt problems. Krugman added that tighter fiscal policy will slow economic growth. I suppose the amount of debt you have doesn't matter as long as the economy is still growing. I mean, you can always pay it back later can't you? Er, isn't that attitude that one that started the global financial crisis? Obviously Krugman doesn't think debt is a problem. And speaking of debt, this link landed in my email inbox early this morning. While it's quite short, it's a worrying read. The writer doesn't just look at America's debt problem, but he points out that individual cities in the states are almost financially crippled as well. The next financial crisis in America could come from bankrupt city and State governments requiring a Federal bailout. Already some court houses have been closed down. And some States across the US may have to shorten the school week from five days to four because they can't afford the teaching salaries. Finally, to end the week and to celebrate Julia Gillard becoming the Prime Minister of Australia, we are going to take one more look at the 'Where do my taxes go?' calculator. Only a day or two ago was the 'Building Education Revolution' calculator added. So now, not only can you find out what portion of your taxes go to what government 'project', but you can now find out how much of your tax dollars will be building fancy libraries and new car parks for teachers! Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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