Today one of the top economists in the world told King World News that the Federal Reserve is now in complete disarray and investors must brace themselves for more turmoil. Michael Pento, who heads Pento Portfolio Strategies, also said that despite a long bout of weakness investors need to own gold, silver and the mining shares in order to protect themselves from the coming storm.
Pento: “We all knew that the Fed suffers from acute schizophrenia, but let’s take a look at what their statement really said today. Of course there was no change in the amount of bond purchases. They are still doing $85 billion every month.
But the Fed downgraded the outlook for inflation. The outlook was for 1% inflation for the totality of 2013. At the Fed’s last meeting in March, the outlook was for 1.5% inflation. So they lowered their outlook for inflation which is half of their mandate.
They then said, ‘The risks to rising unemployment have diminished.’ They mad that bold claim even though the unemployment rate was up last month….
“So the Fed is suffering from acute schizophrenia. Half of the Fed wants to meet and exceed the inflation targets. The other faction of the Fed wants to start attenuating QE right away. But they can’t even agree on how to do it, what to do, or even on the data which is being produced. So it’s a Federal Reserve in complete disarray.
Bernanke will continue to be data dependent going forward. He wants to lower the unemployment rate while he is increasing the rate of inflation. I think that guarantees us $85 billion every month until he sees significant improvements in both of his metrics. I can tell you that the inflation target is likely to be breached before their unemployment target is breached, which is 6.5%.
Just to give you a little color on what the Fed is doing, the Fed’s balance sheet is now $3.45 trillion and everybody knows it’s going to grow by $85 billion each month. Here is an interesting fact for KWN readers: The Fed’s balance sheet is up 16% year-over-year, and by the end of December it will have jumped a staggering 30%. Again, that’s the size of the Fed’s balance sheet expanding 30%!