Fed confirms bond buying to end in June, but strong dollar policy has low

credibility

No Change in loose Monetary Policy and continued position of low inflation expectations

After today’s meeting of the Federal Open Market Committee (FOMC), the Fed announced its
bond purchase program is to end in June but the stimulus is NOT to be withdrawn. The asset
markets continued to move higher and the USD continued it’s decent. One has to the question
the fundamental values of these assets and if speculation is sparking another asset bubble due to
excessive government economic stimulus.

From the FOMC statement:

“In particular, the Committee is maintaining its existing policy of reinvesting principal
payments from its securities holdings and will complete purchases of $600 billion of longer-term
Treasury securities by the end of the current quarter.

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, including low rates of resource utilization,
subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally
low levels for the federal funds rate for an extended period.”

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Comments by government on USD Purchasing Power not credible

Yesterday Timothy Geithner, the US Treasury Secretary, affirmed the government commitment
of a “strong dollar” policy. This was reaffirmed by Ben Bernanke after today’s FOMC meeting
during his press conference.

The timing of Geithner’s statement is questionable and gives it less weight. It looked predicated
on the anticipation that the weak dollar will be one of the questions Bernanke would have to
answer at today’s press conference.

If the US treasury and Federal Reserve are committed on maintaining the purchasing power of
the dollar, they would have made a strong statement weeks ago.