Is Bernanke About to Screw us Over Again?

For the time being, it sounds like even Bernanke's toughest critics are having a hard time fighting bonds that show no inflation.

As the American people worry how Bernanke and the Fed will affect the value of the American dollar by adding to his record monetary stimulus today, the bond market appears to be on Big Ben's side.

From Bloomberg:

Debt traders are anticipating prices will accelerate at the Federal Reserve’s target rate of about 2 percent during the next five years. The break-even rate for five-year Treasury Inflation Protected Securities -- a yield differential between the inflation-linked debt and Treasuries -- was 2.07 percentage points on Dec. 11. That’s a measure of the outlook for consumer prices over the life of the securities.

The bond market shows that, two years after the Fed’s second round of asset purchases sparked criticism from Republicans predicting a surge in prices, there’s no incipient anxiety of such risk. That confidence in Bernanke’s ability to keep inflation in check bolsters policy makers’ case for expanding their third round of so-called quantitative easing at the two-day meeting that began yesterday.

According to Dean Maki, chief U.S. economist at Barclays Plc in New York, the market is relatively assured that the Fed is going to “get it just right.” 

Meanwhile, joblessness rates “unacceptably high” – recorded at 7.7 percent in November. Nonetheless, inflation expectations are in line with the longer-run inflation objective, according to Federal Reserve of New York President William C. Dudley.

Many Fed policy decision makers support providing stimulus through asset purchases, although not everyone agrees with more bond buying. Philadelphia Fed President Charles Plosser is one such individual who is worried about the future consequences of these kinds of policies that will risk higher inflation.

Fears are escalating as the Fed follows through with the second portion of a two-day meeting to discuss the need for additional stimulus. Many Fed officials and experts worry that the U.S. is stuck in an “everlasting 2 percent-type range.”

Perhaps this is the biggest signal that it's past time to give up the ghost; although we doubt the Fed will give up the foolishness that easily....

We'll keep you updated on results of today's meeting but you should expect more asset purchases ahead.