Thursday, 19 September 2013

Fed Sticks to Stimulus and Cuts 2013 US Growth Forecast

Ralph Shell, Excel Analyst

Excel Markets Analysis The much-anticipated commencement of the Fed's taper has been postponed as the economic expansion in the second half of the year has been reduced to 2% from 2.3%; this will be the third reduction for the year. 

Chances are there is another reduction coming in a month or so.  Like the sign in the bar promising free beer tomorrow, the Fed is promising growth next year, but you never know.

There was good news reported in the Telegraph: "As the wise, patient, and always self-effacing Mr Schäuble writes today in The  Financial  Times, the Euro-sceptics talk and write relentless drivel. 

"Ignore the doomsayers: Europe is being fixed" is the headline: The eurozone is clearly on the mend both structurally and cyclically.  What is happening turns out to be pretty much what the proponents of Europe’s cool-headed crisis management predicted. The fiscal and structural repair work is paying off, laying the foundations for sustainable growth. This has taken critical observers aback. It should not have, because, in truth, we have seen it all before, many times and in many places.

Despite what the critics of the European crisis management would have us believe, we live in the real world, not in a parallel universe where well-established economic principles no longer apply."

That is right if you hand-pick your facts.  For example, unemployment in the EU is over 12% while it is under 6% in Germany.  In Spain and Greece, the unemployment is over 25% and the youth unemployment is above 40%.

Southern Europe is stagnating, with Italy on the threshold of another political meltdown.  

Click to Enlarge EURUSD Daily Forex Chart
EURUSD Daily 18 September 2013, Excel Markets Analysis

The growth rate in Europe - has it really recovered from the recession?  Would it have recovered had it not been for the Fed's relaxed money supply? And how will it be should the Fed ever tighten and rates stay higher?

And on the threshold of Frau Merkel's re-election, how long will Europe enjoy the benefits of a 1.35/36-handle euro?  This should be interesting.
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