Fed Thinks It Has Conjured Inflation

After two days of satanic worship, no-safeword BDSM and blackface minstrel performances, the Federal Open Market Committee (FOMC) announced today that it will stay the course on currency manipulation. According to the post-meeting press release, the Federal Reserve will maintain its effective negative target range for the federal funds rate. With economic activity "leveling out," "signs of stabilizing" in household spending, "tight credit," continued business cutbacks and a "gradual resumption of sustainable economic growth in a context of price stability," the Fed expects inflation to "remain subdued for some time." But the Fed is also standing by its plan to discontinue purchases of Treasury debt this fall:

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October.

The plan to phase out Treasury purchases is a bet that inflation will be kicking in by the fall, as Americans gear up for the harvest festival that marks their winter solstice. Will Santa be bringing you a wallet full of degenerated dollars? Some early signs: The greenback spiked right after the FOMC's announcement, but has been falling against the currencies of countries with adult supervision. Demand for the the 10-year Treasury note followed the same pattern—with the FOMC's statement triggering a brief flurry after a disappointing auction of $23 billion in new government debt earlier in the day. Maybe the market took the boilerplate about "subdued inflation" seriously. Or maybe it's easier to believe the economy will heat up when the Fed doesn't say so.