On January 1st, several members of the Federal Reserve's Federal Open Market Committee (FOMC) were replaced with new representatives, and the direction of the board is now more likely to facilitate money printing in the economy than previous committees.
Prior to the turnover this year, the majority of members were considered Hawkish in regards to staving off rising inflation, and kept the central bank in check from instituting massive QE programs, and monetization processes. The new members however, have a long track record of intervention and goals of economic stimulus, and the Fed's direction in 2012 could strongly push for QE3 if the liquidity crisis and economic recession continues to prevail.
The biggest news, by far, is that as we wrote a few weeks ago, the composition of the FOMC voting members changes drastically as of January 1, with Hawks Fisher, Kocherlakota and Plosser now out of the voting rotation, and replacing them will be the gaggle of ferocious doves Pianalto, Lockhart and Williams. In fact the only hawk left in the Fed as of today through the end of the year is Richmond Fed's Jeffrey Lacker who has shown substantial dovishness in the past. In other words, from a rotation of 7 and 3, the Fed is now uber-dovish by a 9 to 1 majority. - Zerohedge
The effects of these new voting members could be felt on Federal Reserve decisions as early as this month. After Chairman Ben Bernanke lowered the swap-rates for dollars to ease liquidity in Europe late last year, all of the gains achieved by the Euro Zone and the Euro have reversed, and the crisis is now worse than before the Fed's actions. In fact, French Oat-Bund spreads have lost all their gains after the Fed's intervention in November, and have widened even further. Additionally, the Euro itself, which rallied to 136 against the dollar after the lowering of the swap-rates, has since fallen below 130, and is once again causing liquidity problems for the European banking system.
The Fed is primed to begin 2012 with a new round of quantitative easing that could be used to bailout and stimulate both the US, and European banks. QE1, QE2, and the most recent swap-rate programs have done little but put a temporary bandage on the ongoing problems, and with new FOMC members historically voting for money printing programs, the probability of QE3 and higher inflation appear to be quite good going forward.
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