"The Fed is fracturing internally, and its power to inflate at will faces serious future resistance."
Elliott Wave Theorist, July 2011
Growing evidence supports the above quote.
Several presidents of regional Federal Reserve banks balked at Chairman Ben Bernanke's QE-2 program. Kansas City Federal Reserve Bank President Thomas Hoenig is one of them: in 2010, he actually voted against all seven of the Fed’s monetary policy decisions.
Former Fed governor-at-large Kevin Warsh “warned of ‘significant risks’ associated with the program” (AP, 11/9/2010). In a speech in San Antonio, Dallas Fed president Richard Fisher called QE2 the “wrong medicine” for the economy.
Disagreements among the Fed's policymakers are no longer expressed only behind closed doors -- they increasingly become public:
"At one end of the spectrum, so-called inflation hawks like Dallas Fed President Richard Fisher think the recovery is building momentum and the Fed should refrain from further accommodative policies.
"....others at the Fed think the central bank needs to do even more. And their calls for stimulus seem to be growing louder.
"Chicago Fed President Charles Evans for example, said Tuesday that he wants the central bank to do more to help the job market and the housing sector."
CNNMoney, (11/15)
Can "a house divided against itself" stand? The question alone suggests that the Fed is losing credibility. Many observers labeled QE2 a failure, which in turn raises an entire new set of questions about an economic recovery under "Operation Twist." That's the nickname for the Fed's policy to sell short-term Treasuries and buy longer-term Treasuries, with the goal of lowering long-term borrowing costs.
So is this the point where Bernanke can no longer use Fed policy to "inflate at will"?
Well, Robert Prechter says something "momentous" happened on September 21, 2011:
"...despite worry that the economic recovery is faltering, the Fed declined to announce additional quantitative easing. In a nutshell, it has discontinued—for now, at least—its policy of rapidly inflating the base money supply."
Elliott Wave Theorist, October 2011
It appears that the Fed's "money-printing machine" has been sidelined. Here's an excerpt from an Oct. 18 Bloomberg article:
"....The U.S. Federal Reserve is under more pressure than at any point in three decades over Chairman Ben S. Bernanke’s efforts to jumpstart the economy, and the criticism threatens to undermine support for the central bank."
Is the curtailment of Bernanke's inflationary policies a sign that an entirely different -- even rare -- economic trend is now underway?
Find out by reading risk-free "The Last-Resort Inflation Engines May Have Stopped" in the latest Elliott Wave Theorist. This monthly publication is part of our flagship Financial Forecast Service, which offers you our latest analysis of the economy, stocks, bonds, gold, silver, the U.S. dollar and more.