Tags: Gartman | Fed | easing | Stimulus

Dennis Gartman: Chance of Fed Stimulus Stands at 100 Percent

Monday, 04 June 2012 01:12 PM EDT

The chance the Federal Reserve will stimulate the economy via monetary easing measures stands at 100 percent, says Dennis Gartman, the editor and publisher of The Gartman Letter.

The economy in May created a net 69,000 jobs, far below expectations for a gain of around 150,000, sparking talk the Fed will stimulate the economy to comply with its dual mandate of maintaining price stability and optimal employment levels.

Since the downturn, the Fed has twice juiced the economy via two rounds of quantitative easing (QE1 and QE2) by buying bonds from banks and pumping the economy with $2.3 trillion in expansionary liquidity in the process.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

Expect QE3 soon.

"The Fed has made it abundantly clear that it has kept QE3 up on the table; [it] would be executed if economic circumstances deteriorated. And you have to admit that Friday's number — no matter how you try to slice it — was deterioration," Gartman tells CNBC's "Capital Connection."

While May's jobs figures were pitiful, April and March figures were revised downward, making quantitative easing inevitable.

The announcement should come around the time of the Fed's June 19-20 monetary policy meeting, Gartman adds.

Quantitative easing tends to fuel debate, as supporters say the measure steers the country away from deflationary decline and encourages investment and hiring.

Critics says the move is basically printing money out of thin air and plants the seeds for inflation down the road.

Other market observers say all signs put to more easing.

First-quarter gross domestic product growth rates were revised down to 1.9 percent from 2.2 percent, the European crisis is escalating and at the end of 2012 in the U.S., tax cuts are set to expire while automatic spending cuts are set to kick in, a combination known widely as a fiscal cliff that could siphon hundreds of billions out of the economy next year and send the overall economy contracting.

"We've had two months of less than 100,000 job gains back to back, and I believe this is one of the reasons why the Fed may start asking itself, 'What do we do to help the economy?'" says Gregory Daco, principal U.S. economist at IHS Global Insight, according to U.S. News & World Report.

The April inflation report finds that consumer prices rose at an annual rate of 2.3 percent, which is above the Fed's 2 percent target, although Commerce Department personal spending numbers show that price inflation stemming from personal consumption expenditures grew at an annual 1.8 percent in April, which suggests demand remains sluggish.

Even if the Fed does roll out QE3, it might not even work.

Massive liquidity injections stimulate the economy by pushing down long-term interest rates when normal benchmark rate cuts don't work.

Long-term rates are low enough as it is.

"The potential for the Fed to help much more, much further in terms of lowering long-term rates is quite limited, given that rates are already at record lows," Daco adds.

Yields on the 10-year Treasury note slipped below 1.5 percent on Friday to record lows.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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Monday, 04 June 2012 01:12 PM
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