As I expected, the Fed announced today that they would hold interest rates steady. Also, as I expected, they talked a bit tougher on inflation. But that’s all it is – talk!
While there are likely to be loads of market swings this afternoon and tomorrow, the bottom line is this: Nothing the Fed said will change the long-term decline in the value of the U.S. dollar … nor the uptrends in natural resources and inflation. Those trends are far more powerful than the Federal Reserve, or any combination of central banks, for that matter.
And actions speak louder than words. Bernanke has so far failed to back up his tougher talk on inflation and desire for a stronger dollar with any action whatsoever. And he’s not about to start now.
Reason: The weaker dollar and rising inflation are the lesser of two evils. Deflation is far worse an outcome than inflation, and there is not a central banker or politician who thinks the opposite.
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