The Washington Post Writes: Federal Reserve considers explicit pledge: Low rates if inflation stays down

The Federal Reserve is leaning toward an explicit commitment to keep interest rates at rock-bottom levels, as long as inflation remains low.

The pledge would be an attempt to strengthen assurance that the central bank will not tap the brakes on the recovery until it is certain that the momentum can be sustained. The Fed already has vowed not to raise rates — a move that would slow economic growth — at least until the unemployment rate falls to 6.5 percent or inflation rises above 2.5 percent.

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There are a couple of things in this article that drive me up the wall.

• We are not in an inflationary environment,  we are in a deflationary environment. The only reason you we are seeing inflation in certain parts of the economy is due to the FED printing a massive amounts of money ($85 Billion/monthly) and dumping it into the financial system by keeping interest rates artificially low. If that wasn’t happening we would already see clear signs of deflation.
• The FED is punishing savers and true economic growth by keeping interest rates too low for far too long. All while developing significant economic imbalances that will have to be deflated at a later date.  The situation is made worse by creating an environment where only people with access to cheap financing benefit. At the same time the US poverty rate is at all time high or close to 50 Million people. 
• The article assumes that the FED is in complete control of interest rates. At least for now everyone believes that. Yet, nothing could be further from the truth. While the FED can influence the rates, it cannot control it. The market controls the rates. 

This in return presents a trading opportunity for those who think otherwise. Eventually the interest rates will move independent of the FED and destroy the whole scheme in the process.

When will it happen?

Actually, it might be already happening as interest rates already up 100% over the last 12 months. Is the FED finally losing control? I hope so. In the long run it would be great for the US Economy. 

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