Federal Reserve to use all tools available to boost the economy
The US Federal Reserve has increased the supply of money in order to boost the economy. The stated mandate is to keep inflation below 2%, although there was a policy “shift” to allow periods of too low inflation to allow for inflation moderately above 2%. Reuters summarizes this:
The Fed’s new monetary policy strategy, unveiled at the start of an annual central banking conference, pledges to address “shortfalls” from the “broad-based and inclusive goal” of full employment, a nod to research showing racial income disparities hold back economic growth.
It also promises to aim for 2% inflation on average, so that periods of too-low inflation would likely be followed by an effort to lift inflation “moderately above 2% for some time.”
The change suggests the U.S. central bank’s key overnight interest rate, already near zero, will stay there for potentially years to come as policymakers woo higher inflation.
This high degree of intervention will have ramifications, and with the new presidency under way, it appears that more stimulus is no longer a question of “if” but of “when”.
Gold and M2
The WSJ video below talks about the approach the Federal Reserve is taking in order to intervene in the economy, and has some valuable insights:
Conclusion
Expansionary policies appear to be a constant, with the Federal Reserve maintaining monetary easing for the time being, with new stimulus likely in the near future. This will lead increase in commodity prices, and is particularly bullish for Gold. The recent pullback on Gold prices may be an attractive entry-point and is particularly attractive for mining stocks.
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