Will the Fed Bring Clarity or Confusion?

Bruce Krasting's picture

Will the Fed Bring Clarity or Confusion?

By Bruce Krasting 

Next Wednesday, between 12:30 and 2PM, we will get a ton of new information to digest and analyze. The Federal Reserve will make a series of statements while unveiling  its new communication effort. A portion of the new information will be contained in the revised Summary of Economic Projections (SEP).

The Fed has worked long and hard on its new communication policy. The question is, “What will people think and how will the markets react?” I believe that there is a very good possibility that the Fed's plan will add to uncertainties regarding monetary policy. Contrary to its objectives, the new "openness and clarity" may end up causing the confusion.

The Fed will provide information regarding member's thinking on the future size of the Fed’s balance sheet (BS). This is critical. We might see a consensus view that the Fed’s balance sheet will grow another 25% over the next 18 months. That would bring this headline:


Fed Signals Another $1T Of QE

Stocks rise sharply. Oil, copper, gold see largest one-day rise in two years

TIPs spreads widen to 2.5%

We could just as easily get a consensus opinion that the Fed’s BS will remain unchanged for the foreseeable future. That would also be a shocker:


Fed Forecasts End of QE

Global stocks in broad retreat.

Next move is to tighten?


The Fed will provide information regarding its thinking on GDP, inflation and the timing of an increase in the Federal Funds rate (new info). This is all potentially explosive data. The Fed's most recent read (November) on the economy painted a somewhat upbeat picture. Almost all of the data since then has been on the positive side. While I doubt the Fed will signal that happy days are here again, it would appear likely that a +2.0% growth forecast for GDP is in the cards. How is the Fed going to square this (relatively) upbeat economic assessment with a loose monetary policy that is currently at biblical historic levels? The answer is, "It can’t".


Fed Predicts Improvement. To Keep Monetary “Pedal on the Metal”

Global Central Bankers Critical, OECD head says, “Reckless” 

Dollar in rout, Gold rises $65


For the Fed to continue ZIRPing, Twisting and QEing, it has to support the policy with a bleak assessment on the economy. A negative outlook is the only scenario that justifies maintaining, let alone expanding, the existing "emergency" monetary measures.

I think the Fed will hint that monetary contraction is in our future (about a year away, if not sooner). To me, the only circumstance that would avoid this conclusion is if the Fed were to come out with some decidedly disappointing expectations for growth and unemployment for the next 36 months. This too would make for headlines:


Fed Downgrades Expectations

Three More Years of Sub-par Growth


A downbeat assessment would influence the Congressional Budget Office (CBO). On January 30, the CBO will release its ten-year economic outlook. This is what they said a year ago:



The CBO forecasts for 2011 were off the mark. I think they will have to significantly downgrade their expectations for 2012 and 2013. The CBO numbers are the basis upon which long-term estimates for future deficits and the financial status of Social Security (and other big entitlement programs) are made. The Office of Management and Budget (OMB) uses these numbers to craft legislation for the White House.

I find it interesting that the forecast that would best serve Ben Bernanke’s desire to maintain and expand monetary policy is exactly the opposite forecast that the CBO “wants” to use in evaluating America’s macro economic outlook.

On Friday, Morgan Stanley’s David Greenlaw commented on prospects for the Fed’s announcements this week:

In sum, there seems to be some risk of significant market confusion next week.

At the end of the day, we’re concerned that market confusion next week could lead to an unintended tightening of financial conditions.

Mr. Greenlaw is assuming that the Fed will produce an economic forecast that will force a conclusion that further easing is off the table. We may get that. The alternative is that the Fed downgrades its collective assessment for growth, inflation and interest rates. Should it do that, the folks at the CBO will have to either scramble to adjust their own expectations, or face severe criticism for presenting a rosy view of the future while the Fed is singing a different tune.

What will we get next week? Will it be clarity?


Or confusion?


Either way, I can’t wait.


Note: This is a Banksy. What original oil painting is this from?

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arg's picture

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entropos's picture

Here's some levity if not clarity. 





ebworthen's picture

I Googled "Banksy, oil painting" and clicked on the image and it led me back here to this page.  LOL!

Speaking of Queen Victoria and Bansky:  http://www.guyhepner.com/pieces/banksy-auction-highlights-queen-victoria

The FED's primary goal is disinformation, then currency debasement and inflation.

duckhook's picture

The only purpose of the Fed is to make financing as cheap as possible for the US Treasury.If free markets ever determined US interest rates,deficits would explode and there would be a hard default by the Treasury.So more qE and an upgrade in the USA gdp

Fiatfan's picture

Good grief guys.  This debate is painful and seems like a distraction from the real point.  

I pulled this from www.quotationspage.com.  It seems to answer all of the above questions to my satisfaction.  


I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson(Attributed)
3rd president of US (1743 - 1826)


Fiatfan's picture

Reading through this, it seems obvious to me but perhaps I need to finish the thought...

The question is not QE or not to QE, the entire point is to steal and extract value from the ignorant.  

If the current policy has been to expand and has been for some time, then contraction is in the near future.  

This has been the game as long as I can find in history...inflate-deflate.  Depending on how you set up your business, one or the other will get you.  And most people will get it on both ends, further, when they have you on the ropes, your options are so limited that either one or both will do you in.  

Signing off (for now) with the closing summary 'Give me liberty or give me death' can be effectively substituted with 'Sound money or slavery'


Cpl Hicks's picture

Is the Banksy from 'Drake Playing at Bowls'?

The story being Sir Francis Drake was outside playing with his buddies as the Spanish Armada approached England.

ThirdCoastSurfer's picture

"ZIRPing, Twisting and QE(ez)ing"

onlooker's picture

Professor Krasting,


I have completed the Sunday Morning class. The answer to what the Fed will do appears obvious with the 1st option, unless this is a trick question.


I searched with due diligence to find the oil of Banksy and could not find a match. The hour long mental field trip did fire off a couple of rusty connectors in my 72 year old brain. It confirms the age old saying that you are never too dumb, er uh, old to learn.


Looking forward to next Sunday’s filed trip.

nah's picture

the fed predicts inflation its their only job


its not like their some government superpower holding onto tranistory assets via shell companys in order to give their freinds blow jobs while the rest of us listen to their half hearted arguments for war and more stuff

Lord Koos's picture

"The Fed" and "clarity" are often mutually exclusive...


Zero Govt's picture

"Next Wednesday.. we will get a ton of new information... The Federal Reserve will make a series of statements ...in the revised Summary of Economic Projections"

You mean a ton of new rose tinted projections, every one that'll be wrong (ie worthless). I await hanging on every weasel-word Blowjob Ben utters (Hint: you can tell he's lying when his lips move)

"The Fed has worked long and hard on its new communication policy.."

The Fed has worked long and hard on obfustication, snake oil and weasel words to paper over the economic destruction of America they are integrally responsible for being central to the monopoly (debt) money system and the Feds systemic policy of credit (debt) inflation for the past 40 years (ok, make it 70 years)

"What will we get next week? Will it be clarity? Either way, I can’t wait."

Hang tough there Brucie. I'll be in Starbucks ordering a Cafe Mocha Latte with Cinamon where i'll learn more about the economy from Starbucks price list than you will listening to every slippery word Blowjob Ben dribbles down his double-chin/s

Remember Brucie, "the most powerful people in the World come on CNBC every day"... yes because airheaded lefties (CNBC presenters) soft-shoe the elite with non-threatening sugary questions that wouldn't tax a 7 year old

TheArmageddonTrader's picture

With Newt back in the lead, Bernanke is again facing being a punching bag in the campaign, so he would prefer to push QE through the FOMC as soon as possible, and have that decision be long in the past by the autumn peak of the campaign. My guess is he will focus on the single family housing market, painting that as the one missing puzzle piece needed to make the recovery come together. That would serve to justify buying $1t of mortgage bonds.

I don't think the Fed cares much about how its economic forecasts affect CBO or OMB fiscal forecasts. Which isn't much. OMB is totally political, it doesn't give a hoot what anybody else forecasts, it will forecast whatever needs to be forecasted to support whatever the president wants to do. OMB has its own databases, does not depend on the CBO. CBO is not neutral, it is balanced between Republican and Democrat, both of whom want rosy forecasts to support more spending, so the CBO gets no friction from either side by supplying that, so that's what it supplies. So even if the Fed downgrades its forecasts, the CBO will likely ignore it and the OMB definitely will ignore it.


Freddie's picture

Newt is a CFR piece of s**t.  He quotes Reagan and Madison then behind the scenes he is Pelosi, Clinton and Harry Reid. 

If I had to rank them it would be:

1.Ron Paul - the only choice.

2. Santorum - 10x better than Mitt and Newt.

3. Romney - awful choice but 10x better than Newt.

4. Just about anyone else.

5. Newt

6. Satan

7. The Muslim.

Everybodys All American's picture

I think you will find out Tuesday eve during the president's state of the union address what Bernanke intends to do with respect to LSAPS of mortgages.

Sutton's picture

When trying to find a multiple choice answer, First eliminate the obvious wrong one(s).

"Fed forecasts end of QE

Global stocks in broad retreat

Next move to Tighten?'

patience...'s picture

"will make a series of statements while unveiling  its new communication effort"

The only reason for the feds new communication effort is to get the nay sayers on board, not to change the feds


King_of_simpletons's picture

The concern that there might be "confusion" is duplicitous. The Fed must have already transmitted their show-and-tell stage performance meant for the sheep to these banks beforehand. To act unaware, by these banks is just part of the game. There is not going to be any tightening. It's QE full steam ahead.

xamax's picture

Sorry Bruce, for once you dont'get it:

The one and only purpose in the Fed's announcement on Wednesday is:

S&P 500 must go up !! In their view, future generations can deal with this mess.  

LawsofPhysics's picture

Precisely, the part of the Fed (private banking cartel) that the sheeple are allowed to see is nothing but a PR machine to provide cover.  The confiscation continues and the word you are looking for Bruce is "cover", the Fed is providing "cover", nothing more, nothing less.  Wake the fuck up and hedge accordingly.

new game's picture

i say; minimal cash in bank, cash to purchase, zero debt, some pm and a lifestyle of within ones means.

the only thing left that they have over me is taxes, which for the most part can be minmized legally.

it is quite simple. resist marketing, wait til the next day and the 'need' goes away.  buy only what makes economic sense.

if the majority started doing this the system would self correct...

all fucking wish/think, but at least i am economically free for now with positive cash flow every month.

balance statement continues to be impared by past macro fed policy(greenfuckhead), but not something i can change, (i must live somewhere).

everyone doing their part...

lincolnsteffens's picture

Those are very dangerous radical ideas. Who in their right mind would live that way? Obviously to date not many. I've been trying to get my Town to behave that way for twenty years with very little success.

We have reached a cyclical point that has unfolded with striking resemblance to the "Roaring Twenties". A 30 year period of rising wealth was based on constantly expanding world credit and a flood of immigration.  Like the disruptive "Machine Age", the addition of Moore's law applied to technological advances led by the computer, credit, and cheap Chinese labor, the crescendo's end arrived when the 2nd major wave of real estate credit based transactions reached the point of frenzy, finally collapsing in an orgy of unsustainable greed exhaustion. There was no serious thought to the implications of a twenty or thirty year commitment of slavery to pay Jumbo loans plus 10 maxed credit cards back. The lenders didn't care about risk since the government was backstopping a large percentage of the loans. Lenders were making great fees by selling the debt to others in a game of "hot potato". Breaking laws with no consideration of harm to others has become common and transparent. Borrowers on credit cards put up with interest rates that are what common sense law would characterize as usury.

Without punishment for the most serious offenses we will become a lawless nation. No one will fear the consequences. It is an old children's game of "Follow The Leader"/"Monkey See,Monkey Do." We need some grown ups.

Quinvarius's picture

They will continue doing massive QE and they will continue not saying anything about it.  They will continue hiding their true balance sheet using accounting tricks and the TBTF banks.  I don't think for one second that QE has done anything but accelerate since the Fed pretended QE2 stopped.  Admitting it serves no purpose.

DosZap's picture


Admitting it serves no purpose

Exactly, doing the opposite starts the bonfire under commodities,PM's,etc.

And, cut the POTUS nuts off on election day.

They will have NO more Publically announced  QE progs(unless a HUGE Black Swan) appears.........................they have wisened up, and are just adding digits, and keeping their mouths SHUT.

What you do not know, can Kill your country,you lifestyle, and your future.

Since they could care less about that,it's Staus Quo.

LawsofPhysics's picture

I agree, and as the Tyler's of the world have pointed out, they really are not that good at hiding it.  Look at how busy the swap window has been.  I remain simply amazed by the amount of price suppression in commodities that we are seeing.  I feel that this will sort itself out in the next year or two, if there is real demand for food and fuel (and there are 7 billion people screaming "YES") then demand is not going to go down anytime soon.  Based on the prices we have been getting for soybeans, pecans, and walnuts in asia, couple this with the BRICs trading for oil in other currancies and I am willing to invest (place large bets) that the price suppression will indeed break in ALL fiats with the most pain coming those holding the old petrol dollar.

Mr Lennon Hendrix's picture

Look at how busy the swap window has been.

This is one of the main jobs of the PWG- "to maintain market stability".  You are correct about what has been happening; QE X will be more for fear based purposes than anything.  "You need us" is the point the ederal Reserve wants to get across not just to America, but to the world.  This is why it will likely be a European Default that serves as a catalyst.  "America, you don't want it to happen here, do you?"  Will be the question asked. 

It will likely happen in March.

Earl of Chiswick's picture

QE by any other name will be the mortgage play. Gross was wrong last summer but I suspect this time around his bet will pay off much like his multi billion Fannie Freddie bet on the eve of their rescue back in the summer of '08




as some have noted above, this is an election year and whilst the dems and reps are one and the same, Obama is on a trajectory for re-election given the disarray of the reps, a massive bailout will all but assure his coronation.  Best to be long going into this week.

new game's picture

in an ulta micro view, many smart americans have refied their mortgage to .67 p and i.

this has allowed them to sustain a lowered standard of living and be whole.

thank op twist.  for the unfortunates; they bought an i-phone and can app for a rental prop while gpsing to the showing.

all this is ongoing and reshaping the haves and have nots.  in retail, the merchants hang in suspense of the eventual deflationary credit bust coming.  massive deleveraging as seen in eu will arrive 2013.

the fed will eventually print to offset the natural occuring result of to much credit.

we can only position ourselves by getting entirely out of debt.  ONLY solution.  if that means renting - fine.

living within ones means insultes oneself from all the charades and ponzi actions. cash only and pm to insure what you have is yours. all else is fucking bullshit...

no life's picture

I think by having all the doves on the voting committee this year and then in the last couple of weeks before the meeting trotting them out one by one telegraphs that they are just jawboning at this point. They want to toe the line on the fact that what they've done in the past has worked and that data on the economy is showing improvement, etc., etc. They'd have to go back on all that talk if they wanted to initiate QE4. 

Unemployment has even improved slightly if you believe their numbers (in reality, we all know it hasn't.. but the Fed has never really done anything that they thought would substantially put a dent in unemploymentand and they really don't care much, despite the half-hearted references seen in their speeches lately).  

And they've been getting a lot of political heat on printing money and stoking inflation all over the world. And it may be that they simply can't throw on more QE at this particular meeting due to the timing. So just jawbone until you get to the next meeting. Why not throw a bone to the critics re: money printing, by 'showing caution' at the current meeting (all the while chomping at the bit for the next QE asap). A big enough shock to usher in QE hasn't happen yet, it's coming in the next few weeks. That is what they are waiting for. In the meantime they simply let the market know that they are monitoring the improving picture but that they have a really itchy trigger finger should that data for any reason crumble. So it cushions the impact on the market of the shock when it happens. People know the Fed is going to simply come to the rescue, so BTFD.

Anynow, it would be funny if the president was pumping how much things are getting better in the SOTU speech Tuesday night and the Fed initiates a desperate one Trillion dollar money printing injection on the very next day...

The Monkey's picture

All they have left right now IS jawbonining and foating the "help for homeowners" trial balloon. Republicans could gain a lot of momentum this year if the Fed punches the monetization button.

Just do it! Print away so we can DO AWAY WITH THE FEDERAL RESERVE.

Mr Lennon Hendrix's picture

I have been thrown for a loop at the rise in equity for the last few months.  Especially during this leg of the Euro crisis.  I don't think QE X will be announced as I think it needs a catalyst.  Although MBS buying is on the table, everyone is (and has been for this year) touting a housing recovery in the works.  I am not sure how the Fed comes out now and issues QE X.

I think the only catalyst will be an end game scenario for the Euro Crisis.  I think that if something catasrophic like a Greek default occurs then the Fed will remind America that we do not want that over here.  Then QE X will have a reason. 

QE X could take any form.  It could be MBS buying, another FX Swap and continued POMO Ops and OT2, but it will need a catalyst.  There is no reason for Bernanke to issue it right now.

Yet maybe this is backwards.  The Fed couldn't do E X last Fall due to political pressure from the GOP candidates because "it wasn't working", so maybe they issue QE X now because "it is working".  Who fucking knows what these bastards will justify their policy with.  None of it is justifiable or sound anyway.

adr's picture

If they say the economy is improving, then that would mean expanding balance shets and generating $6 trillion in on the books debt, perhaps up to $40 trillion off the books, actually works. The only thing they did was to inflate the stock market, which to academics is the economy. To that end what the Fed did actually "worked". The consequence is the Fed sent millions of Americans directly into poverty, destroyed untold numbers of small business through rising input costs, decimated the housing market, allowed the continuation of massive market consolidation through buyouts and takeovers, allowed directors easy access to a perpetual wealth generation through easy money financed stock buybacks, made money in the bank worthless killing retirement plans, and created a labor maret where 90% of jobs pay minimum wage. I don't know how you reconcile all that with an assesment of an improved economy. The only improvements  are in the balance sheets of large cap corporations employing a skeleton crew of American workers earning ever shrinking wages. Working Americans will not survve another round of easing. One more QE officialy puts Sears, Best Buy, and quite a few more retailers into the ground. 

DaddyO's picture



Bomb Middle England!


Mr Lennon Hendrix's picture

London calling to the imitation zone

Forget it brother, you can go it alone

DaddyO's picture



It's the name of the print at the end of Bruce's article


Mr. Lucky's picture

Ron Paul in his SC speach describing the current system:

"Oh money comes out of a printing press and should be done in secret creating trillions of dollars in patent amounts for special interest"


The Monkey's picture

What special interests is the Fed looking out for with respect to QE? They are looking to reduce long-term real rates for their constiuent banks (and other highly levered companies) at the expense of American's real income. All this under the guise of the Fed's second mandate: employment.

The Fed has lost a ton of credibility in going to such extremes to avoid deflation. American real incomes grew markedly over the period known as the "Long Depression" following a railroad bubble. Unemployment was high, but wealth disparity narrowed. The deflation was comparatively mild relative to the 1930's and in great part due to technology enabling huge leaps in productivity.

This obsession with inflation is ridiculous. Volker has said it, others in the mainstream are slowly getting on-board.

The Monkey's picture

I noticed a couple of downvotes with that last post, but suggest you read up about the period of deflation in the late 19th century America. Even though growth was slow and unemployment high, this was a very productive set of years for the United States & purged a lot of debt from the economy. Deflation ran at a rate of about 2% per year and there was no debt deflationary collapse into the abyss.

My point is that the Fed and talking heads like Krugman see falling prices as the end of the world and do not even attempt a trade analysis with various rates debt iquidation. If it's up to the current set of idiots, we would be lerering up to even greater heights of debt. These trades were on the table in prior US crisis, and should be on the table now.

The Monkey's picture

Read: Murray Rothbard: "The Case Against The Fed"

TSA gropee's picture

100's of billions, now trillions. Where the fuck do most people think this money comes from? The sad thing for me is, is that there is no surprise, no shock. Where do I check in to be be "comfortably numb"?

Mr Lennon Hendrix's picture

Where the fuck do most people think this money comes from?

From the shavings of unicorn horns and pixie dust made and gathered by the elves of the Sacred Forest of Mondor.

falak pema's picture


Note: This is a Banksy. What original oil painting is this from?

Queen Elizabeth I and Sir Francis Drake, playing bowls, waiting for the Spanish Armada!


disabledvet's picture

Wish i had the answer to your painting question because that's an awesome image. It makes me think of Coney Island and the rise of a "consumer class" in New York and ultimately the entirety of the United States. "Which relates me to" (as Billie Holiday would sing in God Bless the Child) our up and coming "Sphinxering" event. People call me the onion...but the bottom line is Bernanke IS the Onion! I phucking HATE that he's doing actually works! I WANT 20 percent interest rates...a "clearing of the Titanic's decks" as it were. I will say this i don't think anyone is expecting any..."HARD TO STARBOARD!!!!!!" orders from the Captain of our Banking System: http://www.youtube.com/watch?v=6zrH2osypGc&feature=player_detailpage
And if there's a problem i don't think our Chairman will order the ship to "keep going"..."refuse to call for help"...and "tell the passengers to go back to their room cuz everything is just fine." (these all actually happened.) Nope. When your professional actions are no longer being questioned but adulated "in an Onion sort of way" what is one to do? Well...HAVE A NEWS CONFERENCE OF COURSE. I will wait with bated breath for the only question that the world wants asked (namely: "are you really just a phucking asshole you worthless cocksuckin' motherphuckin' piece of bleep, bleep, bleep, bleep, bleep, bleep, bleep, bleep) followed by a thoroughly truthful answer by "our True American Original"...namely "Yes. I am." Which will then be followed by a stony silence...and an "all right! I thank you all for coming. Our next meeting coming up in....well lookey here! just 8 weeks!" 'till then...here's something to keep you all yearning for my return:

non_anon's picture

if your not on the Fed's secret list, continued lies and obfuscation

bank guy in Brussels's picture

Ha! - yes. Bruce Krasting is not in the inner cabal.

This is the Fed's new way of Greenspan - speak. One of the former Fed Chairman's famous lines:

"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said."

- Alan Greenspan

barliman's picture


Oh well, in for a penny in for a pound I guess ....

The Fed will announce that it sees the economy as continuing to make progress but facing serious risk from Europe and the uneven news regarding China. The ZIRP policy is providing an appropriate level of support and will continued to the middle of 2013 unless events force a different path. The possibility of needing additional quantative easing has eased somewhat in light of the improved numbers since the last meeting but the FOMC will be looking for significant improvement of GDP above 3.0% for two consecutive quarters before setting a date for reversing the LSAP purchases and removing the prospect of additional QE from the tools ready to be used to sustain economic improvement. The importance of political action in support of the white paper submitted by the Chairman will be stressed as a necessary ingredient in continuing the recovery.

The individual projections will all be less than 1 standard deviation from the mean (baaaaahhhhhhh!)

The "surprise" will be that no set date for QE3 will be forecast or foreshadowed.

In easier layman's terms, Benny and the InkJets will JAWBONE, JAWBONE, JAWBONE ... but in a more melodious manner now that the hawks have been chased from the voting seats.


P.S. If I am right, I want the big stuffed monkey on the top center shelf!

LawsofPhysics's picture

Has the plan really been anything other than Japan 2.0?  No.  The world can print all it wants to, and it will, but the available energy required to drive the world's REAL economy is what it is, hedge accordingly.

What I think this blog, and many others, are saying in layman's terms is PROSECUTE THE FUCKING FRAUD, on all levels.

dracos_ghost's picture

How do you prosecute the Fraudsters when they are the prosecutors?

Stax Edwards's picture

That certainly seems to be the task at hand, and I think the battle is beginning.  The American rebirth is necessary and is coming, the Globalists can go pound sand we have had enough.

Nobody For President's picture

As usual, enjoyed your analysis Bruce.

It does appear that there is a very large chance the Law of Unintended Consequences is about to rear its' ugly head...