The Federal Reserve recently released its minutes from its latest board meeting three weeks ago. It seems that economists may be interpreting these minutes to mean that the Fed may be close to taking action in another round of quantitative easing.
In fact, a Reuters survey of 17 of the Wall Street primary dealers who deal directly with the Fed, as well as an additional 44 economists, revealed that more than 50 percent of them believe that the Fed will launch another round of QE3 before the November elections.
The minutes did show that many board members see the need for additional monetary action "fairly soon,” unless the economy could significantly recover on its own. This appeared to be welcomed news for investors, as markets climbed to a four-year high after the release of the minutes.
The markets then saw gold and silver prices move markedly higher in the past week, possibly on concerns of the same news of continued Fed involvement.
When the Fed decides to print more dollars, this can cause the value of all existing dollars to fall, which ultimately could lead hard assets such as gold and silver to go up in price. The ever-increasing possibility of the Fed printing more money could have been the impetus behind this recent increase in precious metals.
Unfortunately, our highs did not hold up for long, and the hopes of the Fed intervening seemed unable to overcome investors’ pessimism toward a Chinese economy that continues to contract. The HSBC Purchasing Manager's Index (PMI) for Chinese manufacturing fell to 47.8 from 49.3 in July.
HSBC’s PMIs are monthly data-driven snapshots of individual countries' economies and are compiled using proprietary market research techniques. Any reading below 50 means that China's manufacturing is shrinking rather than growing (perhaps along with investors’ trust).
It appears that the Fed is doing its best to try to stimulate this economy by any means possible. Unfortunately, due to global economic circumstances beyond its control, the solutions will most likely require much more than quantitative easing.
Joe Wirbick is the president of the Lancaster financial services firm Sequinox. Joe specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.