The latest FOMC statement did not surprise the market. The FOMC decided to buy USD85 billion per month in Treasuries and Mortgage Backed Securities (MBS), which the market expected.
Ben Bernanke said that the Federal Reserve (Fed) would continue with this latest Quantitative Easing (QE) stimulus until the U.S. unemployment rate goes below the magical 6.5%. This means that this QE will continue indefinitely and the United States government will incur higher levels of debt.
This means only one thing to me: the Dollar will weaken further. Ben Bernanke wants to induce inflation and he will succeed. In fact, I think he will out-do himself and cause the U.S. to suffer hyperinflation.
I am of course speaking about the long term (2-5 years). For the rest of this year however, I believe the market will hold out for resolutions regarding the impending “fiscal cliff.” I believe the USD might have a positive knee-jerk reaction if the Obama Administration manages to craft out a compromise. Since they cannot totally stop government spending, they will continue spending and incur more debts. This brings us back to the point about inflation and the weakening of the Dollar.
To your success as a profitable trader,
Mario
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