Axel Merk manages mutual funds specializing in currencies. He too has posted an article on Safe Haven to describe his analysis of the statements coming in the follow up analysis of the recent Fed Open Market Committee meetings. His article is brief and to the point. Read it here.
Axel Merk is saying what I think is most likely, assuming no unexpected financial shocks. The expected ones (CMBS, RMBS, other defaults) are still coming! And he is using his world wide perspective.
As a result, it seems that the Fed may indeed halt the massive balance sheet expansion at the end of the first quarter of 2010, but such a break is not indicative of tightening, but a pause at an extraordinarily accommodative level.
In our assessment, the Fed is continuing to ease at a time when the European Central Bank (ECB) has already withdrawn liquidity and central banks ranging from Australia to Norway have raised interest rates. It seems rather unlikely to us that the Fed will have a tighter policy than the ECB in 2010. Of course, the eurozone faces challenges in Greece, Ireland and Spain, amongst others; but the U.S. will also face substantial headwinds, for example, commercial real estate. Ultimately, the global tightening wave many market observers are predicting in 2010 may be far weaker than priced into the markets.