Lombardi Publishing’s Investment Contrarians, is releasing its comments on the surprise decision of the Federal Reserve to continue with its quantitative easing police unabated.
New York, United States - September 27, 2013 /MarketersMedia/ --
Investment Contrarians, an e-letter published by Lombardi Publishing Corporation, a 26-year-old consumer publisher that has served over one million customers in 141 countries, is releasing its comments on the surprise decision of the Federal Reserve to continue with its quantitative easing police unabated. It also warns that the Federal Reserve is running out of options for encouraging sustained economic growth.
On Wednesday, September 18, the Federal Reserve surprised the global markets with the announcement that it was going to keep its $85.0-billion-per-month monetary stimulus effort in place. The Fed said that even though the economy and labor market continues to improve, it would await more evidence for sustained progress before adjusting the pace of its purchases. (Source: da Costa, P., and Bull, A., “Fed surprises, sticks to stimulus as it cuts growth outlook,” Reuters, September 18, 2013;.)
Sasha Cekerevac, a Senior Editor at Lombardi Publishing, notes: “Everyone was expecting some reduction in monetary stimulus; to have no change at all was quite a surprise. But while the markets celebrated the news with new record highs, the fact that the Federal Reserve feels the need to continue pumping monetary stimulus into the economy actually worries me.”
According to Cekerevac, while the stock markets may be trading near record highs, the Fed’s recent actions suggest the current economic situation in the U.S. is not as promising as many have been led to believe.
“We have seen some data over the past couple months that indicate the pace of job hiring in the U.S. economy is starting to decelerate. At this point, the trend should have been for jobs growth to begin exceeding 200,000 per month. But while the level of job creation is still positive, it’s nowhere near the 200,000 mark, which is a concern,” he adds.
On top of that, the Federal Reserve is also worried about the continued drop in the participation rate, says Cekerevac. A person leaving the workforce is not a sign of economic strength, he remarks. By keeping the monetary stimulus program in place, the Fed is hoping companies will be enticed to expand and hire.
He observes that over the last couple of years, monetary stimulus has helped certain sectors that are interest rate-sensitive, such as housing and vehicle sales. It is not, however, a policy that can work everywhere. In fact, the Federal Reserve is extremely limited in its capabilities to help the economy; taxes, regulations, and structural reforms are all part of the federal government, says the analyst.
Cekerevac worries that “this inaction by the Federal Reserve to at least begin reducing monetary stimulus, even marginally, is a sign that the underlying economy is weaker than many people believe. The problem is that the Federal Reserve is running out of options for what it can reasonably do in terms of creating additional monetary stimulus.”
Despite the monthly multi-billion-dollar monetary policy, U.S. unemployment remains stubbornly high and wages are stagnant, says Cekerevac. Corporate revenues are not growing and earnings growth remains difficult. Much of the reported earnings growth has been on the back of cost-cutting and share buybacks.
Cekerevac concludes, “If the Federal Reserve begins to reduce monetary stimulus and revenues are not accelerating, that’s a bad combination for stocks. If, on the other hand, revenues begin to accelerate, then the stock market can continue moving upward.” But, until there’s a broad acceleration in revenues, the analyst advises caution.
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation visit Lombardi Publishing’s Website.
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