London Burns as Riots Heat Up, Euro Zone QE, World Stock Market Crash Halts and the Federal Reserve Talks Tough Through Ben Bernanke

When Ben Bernanke spoke on behalf of the Federal Reserve System today, he pledged that the Fed would keep interest rates low through mid 2013.  Now we know what he meant by an "extended period," another two years of excessive bond purchases from the Fed.

Here is the Federal Reserve's statement released after today's monetary policy meeting:

Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. 

Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. 

Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity. 

Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions. More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable. 

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. 

The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations. 

To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. 

The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. 

The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate. 

The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate. 

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser, who would have preferred to continue to describe economic conditions as likely to warrant exceptionally low levels for the federal funds rate for an extended period.

Great Britain floods the streets of London with over 16,000 police intent on keeping the peace as the city burns.  Spanish and Italian bonds will be purchased by the ECB, or suffer another Greece calamity, twice over this year.  The Euro Zone has stolen thee US playbook, as I have said before and QE is the strategy.  This will exacerbate the root causes of the problems in the ailing Euro nations. 

The US equity markets saw a major rebound today at the close after volatility swung us quite wildly.  A great percentage of companies getting so cheap (and/or appearing cheap), we may still be out of line with the underlying fundamentals for the most part.  I think there are so many opportunities at these levels, but this never means the overall market has turned just yet.

I have been quite busy since the recent volatility spiked, pardon me compiling and abridging these topics.