The Fed announced today that they would hold rates “exceptionally low” for “an extended period.” This is exactly the script that was expected from Time’s person of the year. CPI came in at 0.4% for November, contributing to a 1.8% year over year increase. This is considered to be quite reasonable. PPI, reported yesterday, hit 1.8% for November. This is not considered to be reasonable (a 21.6% annual price inflation rate for producers if it were to hold steady), and made some people expect some hint of hawkishness in the FOMC statement. Remember, though, that the Fed has a dual mandate. Any statements about fighting inflation would mean that jobs had taken the backseat to inflation. Bernanke still has to be confirmed by the Senate. No Senator would be caught voting for someone who took that position right now.

There was a lot of discussion today of the gulf monetary pact. This has some people spooked about the dollar. And yes, the currency is being referred to as the “Gulfo.” Nobody was feeling particularly creative.

I’m certain the long term trend for the dollar is down. However, I would not be surprised if the dollar index hit 80 before March. Yes, that would be a huge (some would say “laughable”) move up, and would almost certainly entail the stock market revisiting the lows set in March of this year. What Dubai, Greece, and Austria have demonstrated is that the the underlying problems of too much debt supported by trash assets has not been solved. Citi’s failure of an offering tonight indicates that flooding the system with liquidity can only delay the reckoning. We would need a substantial weakening of the dollar to “solve” the problems with liquidity. China’s currency has actually managed to fall against the dollar recently, a sign that the Chinese are not too keen on letting us inflate our way out of our debts to them. More important, they’re not keen on us inflating our way out of our trade deficit with them. This is a race to the bottom that we cannot win.