Economic collapse continues as Federal Reserve unlikely to end aggressive stimulus

The Federal Reserve’s efforts of acquiring $85 billion each month of Treasurys and mortgage bonds will persist. It is widely believed that when the Fed ends its two-day meeting it will just issue a statement confirming that it will continue to stimulate the United States economy, despite the drop in business activity.

Fed Chairman Ben Bernanke will also keep its short-term interest rate near zero until the unemployment rate dips to 6.5 percent from the present 7.6 percent. Both policies are attempts to encourage businesses and consumers to spend and borrow more to kick-start the economy.

Some economists believed prior to the meeting that the central bank might slowdown some of its stimulus measures, but the disappointing jobs report for March and the notion that inflation is tamed will incite the central bank to keep its policies. The consensus is that the Fed will maintain its easy-credit policies for the remainder of the year.

“The government’s fiscal austerity is kicking in and hitting the economy hard,” said Mark Zandi, chief economist at Moody’s Analytics, in an interview with the Associated Press. “I am not looking for any change in Fed policy at this meeting, not with this weak growth and low inflation.”

Although the Fed has said the low interest rates will transpire until at least 2016, it has been agreed that it won’t be raising rates at least for the next several years. However, some economists see the Fed restraining its $85 billion per month purchases as early as next year.

Even though Bernanke and some of his colleagues want the Fed to print money, there has been dissension, according to minutes released in late February. Others within the central bank have gone public with their viewpoints.

One dissenter includes Richmond Fed President Jeffrey Lacker, who said he would end quantitative easing measures almost immediately if he were a dictator of the U.S. economy.

“I wouldn’t have gone down this asset-purchase path. I’m in the camp that we should taper and stop right now,” Lacker said in an interview on CNBC’s “Squawk Box” from the 2013 Credit Markets Symposium in Charlotte, North Carolina. “You have to prepare markets, if it was up to me, if you made me dictator, that’s what I would do.”

The business barometer in the MNI Chicago Report showed that it declined to 49, the first drop below 50 since Sept. 2009. This figure meant that business activity weakened in April – many reasons, including the instability in Washington, Obamacare, the tax code and the Fed distorting the market through artificial policies.

This week’s meeting was one of the final meetings (six left) where Bernanke will be chairman. No one is expecting Bernanke to remain on as head of the Fed next year when his term ends. The widespread belief is that Vice-Chair Janet Yellen will take over.

Bernanke has confirmed his plans, but Fed observers say there have not been any signals suggesting he will stay on for another term. One clue was that Bernanke said he would not be attending the annual Fed symposium in Jackson Hole this August.

“I think he never really signaled that he’d stay,” said Mesirow Financial Chief Economist Diane Swonk in an interview with CNBC. “I think she’s the No. 1 choice. She’s the one that’s got the most continuity. She’s got a great resume that supports it as well. She’s not necessarily more dovish than Bernanke.”

Would anything change under Yellen? Most likely not as she has come out in favor of the current direction. Let’s put it this way. Bob Janjuah, Nomura’s bearish strategist, told CNBC last month that if Karl Marx was in charge of the world then Yellen would be his central bank governor.