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FXstreet.com (Barcelona) - The annualized GDP Q4 figures in the US shocked investors with a -0.1% contraction from +3.1% in Q3, and a +1.1% forecast. Against such background, nobody had expected anything else from the Fed but to keep things the same, including monthly securities purchases of US$ 85B to reduce unemployment. "And the inflation side does seem to give the Fed room for a more expansionary monetary policy", wrote analyst Ulrich Leuchtmann, expecting a core rate of about 1.4% year-on-year.

However, the real risks of the Fed policy are elsewhere: the Fed's tools cannot replace a sensible labor-market policy and any success would come at the price of a sustained decline in productivity growth. Also, "persistently negative real interest rates (10-year TIPS yields have not been positive since December 2011) are the best recipe for equity and commodity market bubbles. Such a policy will not only lead to inflation risks", wrote Leuchtmann, adding that "it induces to huge misallocations which dwarf the building of pyramids in ancient Egypt". It looks like the Fed has learned nothing from the disastrous mistakes of the Greenspan era.

In regard to to printing money, the dollar isn't weakening because euro strength is compensated by the yen decline. "In fact, the trade-weighted dollar exchange rate has even appreciated palpably since autumn", he wrote, not expecting the "Abe yen-effect" to last forever. "Has the Fed left behind the traditional consensus of US policymakers ("a strong dollar is in the US interest")?"
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