Fed Dismisses Economic Recovery

by Michael Pento - Pento Portfolio Strategies
Published : January 12th, 2012

The Fed is becoming more concerned about the sustainability of the U.S. recovery, just as the economy looks to be gaining momentum. The unemployment rate has dropped from 9.4% in December of 2010, to 8.5% twelve months later. The American economy has added 1.5 million jobs over the past year, according to the establishment survey of employment, while the household survey shows we have averaged a monthly gain of 230,000 jobs over the past six months. Meanwhile, the average work week and hourly earnings also showed improvement in the December Nonfarm payroll report. In addition, Gross Domestic Product has increased for nine consecutive quarters and is anticipated to post just under a 3% annualized growth in Q4 2011, up from 1.8% during the prior quarter.


So what was the Fed's reaction to this ostensibly better news? San Francisco Fed president John Williams told the WSJ in an interview conducted after the December's NFP report release that the central bank will have to buy more mortgage related bonds and that interest rates would not increase for a very long time. Here is his quote, "Unemployment is going to be sustained above a reasonable estimate of the natural rate of unemployment, which is closer to 6.5 percent than the 8.5 percent that we have now. That does make an argument that we should have more stimulus."