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Federal Open Market Committee Again Deceives The Public


By Pat HellerLiberty Coin Service

Last Wednesday, the Federal Open Market Committee (FOMC) ended its latest regularly-scheduled two-day meeting. While the rest of the world waited breathlessly to hear what the concluding announcement would say, my media pronouncement the day before accurately explained what the statement would contain.

In the announcement, the Committee claimed that the economy was neither doing well nor poorly. It cited recent economic statistics to support this statement. Sadly, the data cited were all deceptively skewed to report more positive news than what actually happened, as I have frequently documented in past writings in various publications.

Then the Committee again stated the targets for unemployment and increases in consumer prices that would need to be attained before it would raise the federal funds interest rate. Since the current economy had not met those targets, the feds did not raise the federal funds rate at last week’s meeting. Still, the FOMC announcement implied that an interest rate increase might come later this year.

In a statement shortly after the conclusion of the FOMC meeting, Federal Reserve Chair Janet Yellen said she foresees two interest rate hikes this year, three more in 2016, and more in 2017.

That is what she said. What she did not say is that the cumulative impact of all the increases would add at least a half trillion dollars per year to the federal budget—assuming that the interest rate increase only comes to 3% and that the federal debt does not grow from its current $18+ trillion level.

Does Janet Yellen really think that the US government will ever let this happen? No, it will not! The feds have the largest incentive to hold down interest rates to avoid increasing the budget deficit!

Pretending to be getting ready to raise interest rates, but never actually doing so, matches the market manipulation pattern of the International Monetary Fund (IMF) in years past. The IMF announced multiple times that it was considering selling its gold reserves, then coming up with an excuse to avoid actually doing so. Each of the earlier announcements had the intended effect of knocking down the price of gold for a time.

Then, when it became obvious to more people that such announcements were almost pure bluff, the price of gold stopped falling the next to last time the IMF suggested a possible sale. In response to this failed tactic, the IMF announced a gold sale one last time and actually went through with it. In 2009, the IMF tried to intimidate investors away from purchasing gold by claiming that a large quantity of gold would be available for sale to the public. This tactic backfired when the Reserve Bank of India bought almost half of the total, then the Bank of Mauritius, Central Bank of Sri Lanka, and the Central Bank of Bangladesh acquired small quantities. Later the balance was sold to the Chinese central bank. None of the gold was ever sold to the public. Since central banks demonstrated such a large interest in acquiring gold reserves, the IMF has never since used the tactic of threatening to sell more of its gold reserves.

Similar to the actions of the IMF, the Federal Open Market Committee may be forced to impose one or two small interest rate hikes to prove they weren’t bluffing. But, that will be it.

By the way, the FOMC pretty much admits that even if the economy should reach the two targets for starting to raise the federal funds interest rate, that is just another bluff. The next to last paragraph of last Wednesday’s announcement was apparently missed by most so-called financial experts. It stated:

The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

In plain English, this means that if the FOMC’s targets were reached that would lead the Committee to start raising interest rates, it still might not do so. So why does the FOMC even bother pretending that it might start hiking interest rates?

If you have paid any attention to financial news for more than the past six months, a recurring them among many so-called experts was that the FOMC was on the brink of raising interest rates. Well, they weren’t raised in March, or in April, or at last week’s meeting and so many predicted. It is long past time to stop listening to these self-proclaimed professionals who don’t know what they are talking about.

What they should be focusing on is the reason why the FOMC keeps postponing an interest rate increase. Although the Committee may claim the delay is based upon current economic data, that also is not true. So what is really going on?

In the real world, the price of gold is effectively a report card on the value of the US dollar. If the price of gold is rising, that is a bad sign for the dollar, the US economy, the US government, and paper assets such as stocks and bonds. In order to support paper assets, interest rates need to be kept low to encourage such investments. So long as the price of gold is in the doldrums and paper assets appear strong, the US government can still pretend that the US dollar is strong and deserves to remain the world’s international currency.

This brief discussion obviously does not cover all the relevant factors affecting the wording of the FOMC’s announcement last week. Still, it should give you something to think about—why is it so important for the federal government to lie to the public about interest rate policy? (And Gross Domestic Product, jobs and unemployment, consumer price increases, the housing market, the money supply, and much more?)

Patrick A Heller
Patrick A Heller
Patrick A. Heller was honored with the American Numismatic Association’s 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com). He is also the financier and executive producer of the movie “Alongside Night”.

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