FOMC - Worried about a Lack of Inflation

That is the big thing to take away from today's FOMC statement in my opinion.

Here are the two key excerpts in my view:

"Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable."

"The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back towards its objective over the medium term."

If anything, the Fed became more "dovish" if you ask me as they are back to talking about deflation concerns. This translates to no let up for the foreseeable future ( to use Bernanke's words from his recent Congressional testimony) for the bond buying program referred to as QE.

One would expect this to weaken the Dollar against some of the majors, as is currently taking place, and by default help to shore up the gold price. However, it is this concern about the lack of inflation that should get the attention of gold traders. They are focusing more on that than they are on the weakness in the US Dollar.

However, and I think this is important, their statement just further underscores the fact that all future Fed actions in regards to the QE program are going to continue to be heavily reliant on future economic data. If the data shows steady improvement, talk about tapering will increase. If the data shows weak or lackluster growth, tapering talk will be put off. In other words, traders/investors are on the same exact page with the Fed in that we are all going to be sitting around looking at each piece of economic data as it is released and attempting to view it in the light of potential Federal Reserve action based upon it.

An example - if we get a strong payrolls number in the upcoming jobs report, tapering talk will pick up, the Dollar will rise, gold will sell off and the bond yields will rise. If the number is anemic, the opposite will occur. As you can see, we are effectively right back to where we were before today's FOMC statement was released.

Isn't it peachy that our markets have degenerated into entrail reading of the FOMC?