Tim Duy submits:

The FOMC statement contained a mini-bombshell, the dissent of Kansas City Fed President Thomas Hoenig.

I am skeptical, however, that this dissent is a significant shift in the policy environment. Instead, I view the statement as taking another baby step forward to a normalization of monetary policy now that the financial crisis has eased and that the economic environment has firmed. Many policymakers will simply find themselves increasingly uncomfortable holding rates at rock bottom levels while sitting on a bloated balance sheet – regardless of the unemployment rate. Short of a significant reversal of recent economic gains, I would be hard pressed to see the Fed back away from a policy stance that is growing tighter, albeit slowly tighter.

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Yesterday’s FOMC statement provided an unexpected split vote that suggests the Fed may be starting to lean away from continued loose monetary policy. Although the committee members kept interest rates unchanged and preserved most of the wording from the last statement, Fed member Hoenig dissented in the vote; as he believed “that economic and financial conditions had changed sufficiently that…

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The Prudent Investor submits:

I don’t know what it will mean for the value of Federal Reserve Notes (FRN) expressed in other unbacked fiat currencies, but the Fed will end its half trillion dollar swap trades with various other central banks (notably the ECB), the Wall Street Journal reports:

The Federal Reserve is on track to end a program, begun during the financial crisis, that provides U.S. dollars to institutions overseas through foreign central banks.
In the depths of the crisis, the Fed shipped more than $500 billion overseas through arrangements with other central banks, in exchange for their currencies. Such lending is down sharply and officials expect to end the program according to plan on Feb. 1.
As of January 13, the Fed held $5.9 billion in dollar "swap" agreements with foreign central banks, down from $63 billion in early September and $583 billion in late December 2008 as the financial crisis was worsening…
The Fed said in December it was "working with its central bank counterparties to close its temporary liquidity-swap arrangements by February 1." With the Fed’s next policy meeting coming on Tuesday, Jan. 26th, and Wednesday, Jan. 27th, it is likely to formally announce plans to shut the program down.

Given that the Fed has reduced its exposure to a few billion – what’s a billion in a world drowning in trillions of debt – this appears to be a rather technical matter.

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John Mauldin submits:

The Federal Reserve has been very clear about the fact that they intend to stop the quantitative easing program at the end of March. What that means in practice is that they are going to stop buying mortgage securities. That does two things. As Bill Gross so aptly points out, those mortgage purchases helped keep mortgage rates low. But they also financed the US government fiscal deficit, albeit indirectly. It seems that funds and banks that sold the mortgage securities turned around and bought US government debt or put the cash right back at the Fed.

Foreigners bought about $300 billion of the $1.5 trillion in new government debt. The rest came from the US, courtesy of the Fed buying mortgages. But that program stops (theoretically) at the end of March. The government still plans to run yet another $1.4-trillion-dollar deficit (give or take a few hundred billion). The question is, who will buy the debt? Foreigners will kick in another $300 billion, unless they decide to stop selling us stuff, or buy other less liquid or physical assets. So far there is no sign of that.

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Prieur du Plessis submits:

Richard Russell, old-timer writer of the Dow Theory Letters, Tuesday morning had the following to say about the U.S. Federal Reserve:

We must never again allow a sinister group of individuals to seize control of our money system. The Founding Fathers foresaw the danger of paper money issued with no connection to gold. Moreover, it’s imperative that the discipline of gold be taught to all Americans so that the immoral concept of a Federal Reserve can never again be sneaked or thrust upon the American people.

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Andrew Wilkinson submits:

It made sense to hold fire on sending out this morning’s report until after the U.S. employment data was filed. Ahead of the data the dollar was in buoyant mood after Federal regulators warned banks to protect themselves from a rising interest rate environment. Regulators warned banks to protect their books and even raise capital in the event the Fed changes its stance. Currency traders favoring the dollar on rising yield expectations took this as support for their view that short dated interest rate increases are coming sooner rather than later. In earlier trade the euro fell to $1.4265. After the data the dollar took a turn for the worst as interest rate markets poured scorn on the view that the Fed will firm rates anytime soon. Yet demand outside of the United States helped spur another round of risk appetite sending the greenback lower across the board.

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Miriam Metzinger submits:

Stocks discussed on Jim Cramer’s Stop Trading! TV Segment, Wednesday January 6.

Ford (F), Johnson Controls (JCI), Magna (MGA), Lear (LEA), Tenneco (TEN), AT&T (T), SBA Communications (SBAC), Crown Castle (CCI), American Tower (AMT)

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Andrew Butter submits:

Nicely written articles on Ben and bubbles on SA at the moment (found here
and here).

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Global Investing Editor submits:

The main reason I am resisting the pressure to do forecasting for the year which has just begun is that I cannot predict what the Fed is going to do when. Unlike the economics fraternity who are setting up shadow “open market committees” in favor of tightening now or later, or more easing, I do not have a clear picture of what the economy is up to right now.

So I am not going to tell the Federal Reserve what it should do. And given my agnosticism about my own country, you can hardly expect me to pontificate on what other central banks should do now.

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