FOMC Lives in The Fantasy World with "Ultra-Accommodative" Interest Rate Policies

Hello folks, letst talk about what exactly purpose of the Fed this year, Each quarter the Fed releases their assessment of the economy and their forward looking projections for three years into the future. While Bernanke puts on a great "dog and pony" show for the media – there are only two primary issues with which the financial markets are most concerned. The first issue is the Fed's commitment to continue the current liquidity programs into the future. And then Secondly, is the continuation of artificially suppressing interest rates by keeping the overnight lending rate, the Fed Funds Rate, near zero. In the latest FOMC meeting both of these goals were met:

"To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

While that sounds great on the surface this has hardly been the case historically. Mortgage rates have also risen which puts pressure on refinancing and purchases of homes particularly with the substantial price increases as of late. 

It is important to remember that people buy "payments" and not houses.   With the bulk of the housing market currently driven by speculative demand, primarily from private equity and hedge funds, the rapid rise in prices is outpacing rental rates which historically has not ended well. 

In regards to the continuation of ultra-accommodative interest rate policies the FOMC stated:

"To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored"

Source: Lance Roberts of Street Talk Advisors