Fed says more QE as U.S. Fiscal Cliff draws near

Today’s FOMC Minutes state: “A number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity-extension program,”. QE3 accommodates infinite spending and it is likely that the Federal Reserve will soon increase funds for their Quantitative Easing initiative. We will examine this further below.

Sandy Retail Sales
U.S. Retail Sales seemed to have been hit by Hurricane Sandy when it blew through last month. A 0.3% decrease in retail sales is the figure that was revealed at 8:30 EST Wednesday morning. This is the largest decline in over two years according to Forex Factory’s graph. Wednesday’s announcement was the first negative figure in 4 months for U.S. retail sales. Saks CEO said that Sandy was a “punch to the stomach” to his corporation. Many other companies were hit by Sandy as some were made unreachable because of water and/or closed temporarily because of damage.

A bulk of the decrease in retail sales was in result of weakness in motor vehicle demand and lower spending on furniture, electronics, online purchases, clothing, and building material. It is important to note that many of these assets’ demands will rise as the holiday season approaches. The Dow, Nasdaq, and the S&P are all down this Wednesday so far and possibly correlating with the recent retail sales.

Fiscal Cliff
The fiscal cliff, financial slope, monetary mountain, or whatever terminology you prefer appears to be soon approaching. Will the white house save the dollar or has the damage already been done? A failing economy is already evident but is a lifeless economy inevitable? Let’s not hype up any doom and gloom claims but, let’s keep our eyes open to the facts. This article gives an explanation of what the fiscal cliff is.

As January 1st approaches, American’s eyes are on a 2001 tax cut policy that is due to end. Hopes are that the White House will formulate a plan to figuratively build a fence around the fiscal cliff. Obama’s scheduled Wednesday meeting with CEOs of authoritative American corporations was preceded by a hint of a 1.6 Trillion Dollar tax hike. Among those in attendance of the meeting include the CEO of General Electirc, Jeffery Immelt CEO of American Express, Kenneth Chenault.

Operation Twist is also due to end in December. With that said, Wednesday’s 2:00pm release of October’s FOMC meeting record (or “minutes”) says: “A number of participants indicated that additional asset purchases would likely be appropriate next year after the conclusion of the maturity-extension program,”. Apparently, more Quantitative Easing is on the way. More QE makes me queasy. Read why by visiting our easy to understand QE3 explanation.

As a possible fiscal cliff approaches, risk aversion should dominate the market before we can expect a much weaker U.S. Dollar. As things get uglier, people will likely get out of more risky investments and cling to the dollar. Eventually, as the Fed tries to save the day by printing more money, and the U.S. outlook deleterious from Washington to Wall Street, it’s likely that the implications of the fiscal cliff fall will manifest in a weakening United States Dollar. The Japanese Yen, another safe haven currency could strengthen through the first and second quarter of 2013 in result of EUR and USD chaos.

Tomorrow, Bernanke is speaking at the HOPE Global Financial Dignity Summit, in Atlanta.

It is possible that he will mention today’s FOMC minutes, especially if the audience has permission to question. Whether or not that is the case, today’s QE increase statement will hopefully be elaborated on as we approach the end of Operation Twist.

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