A Massive Liquidity Injection Is Coming

The Fed constrained by the strings of control will likely stare down the market forces a little longer than they should. Inaction, however, does not imply a lack of understanding of the economic trends in place. The Fed fully understands that consumption, the main driver of GDP growth in the US and supported by an increasing number of real world observations, is slowing.

Whether the Fed acts, hints, or says nothing of real importance today, the chart below suggests that conditions are ripe for a massive liquidity injection.

Chart 1: ISM Prices Paid Index (PP) to National Purchasing Manager's Index (PMI) Ratio:

Headline: U.S. ISM survey remains below 50% in July

WASHINGTON (MarketWatch) The U.S. manufacturing sector remained in a weakened state in July, according to the closely followed ISM index. The index was basically unchanged last month, edging up to 49.8% from 49.7% in June, the Institute for Supply Management said Wednesday. Readings below 50% indicates more manufacturers are contracting instead of expanding. It's the first time the index has been below 50% for two straight months since the end of the last recession in mid-2009. Economists surveyed by MarketWatch had forecast the index to edge up to 50.2%. The new-orders index rose slightly to 48.0% from 47.8% in June, but the employment index fell to 52.0% from 56.6%

Source: marketwatch.com

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