What the Fed Said : Fun with the Fed!
(translation to American English in bold; Fed Speak in non-bold print below)
Information received since the Federal Open Market Committee met in June indicates that economic growth so far this year has been considerably slower than the Committee had expected.
TRANSLATION: The economy is slowing a LOT! Damn! And we
thought that QE stuff might actually work!
Indicators suggest a deterioration in overall labor market conditions in
recent months, and the unemployment rate has moved up.
Unemployment is getting worse. And we underestimate it.
But don’t tell anyone.
Household spending has flattened out, investment in nonresidential structures
is still weak, and the housing sector remains depressed.
People are not spending and both commercial real estate and private
housing are in a slump still. Hey prices just went up in DC! Oh,
that is because of all that government hiring.
However, business investment in equipment and software continues to expand.
Tech and investment in machinery is stronger than many have been
saying. But you COULD buy a few more computers and widgets people.
Temporary factors, including the damping effect of higher food and energy
prices on consumer purchasing power and spending as well as supply chain
disruptions associated with the tragic events in Japan, appear to account for
only some of the recent weakness in economic activity.
You can’t blame the inflation we created through QE3 and Japan for
the weak economy. OK, it wasn’t Japan’s fault but it was ours. We
actually decided to create an unnatural disaster.
Inflation picked up earlier in the year, mainly reflecting higher prices for
some commodities and imported goods, as well as the supply chain disruptions.
More recently, inflation has moderated as prices of energy and some commodities
have declined from their earlier peaks. Longer-term inflation expectations have
Stop yelling at the Fed for creating inflation, because it’s already
lessening. This is not Germany post WWI people! You don’t need to
buy your money wheelbarrow yet!
Consistent with its statutory mandate, the Committee seeks to foster maximum
employment and price stability.
We know you want to see jobs appear on Main Street, not just in DC,
and prices to be stable. But then we printed money and expanded the U.S. balance sheet and drove up prices for you, and even destroyed a few jobs because employers cannot pay for their higher costs of doing business. OK, maybe doing nothing would be more helpful here!
The Committee now expects a somewhat slower pace of recovery over coming
quarters than it did at the time of the previous meeting and anticipates that
the unemployment rate will decline only gradually toward levels that the
Committee judges to be consistent with its dual mandate.
We don’t think things will get much better for a long time.
Many people are still probably not going to get jobs. We’re upset by that.
We know our office building looks like it’s gold plated and expensive, and that may seem inappropriate, but it’s actually fake gold.
Moreover, downside risks to the economic outlook have increased.
We could go back into recession. But don’t say the R word,
pretty please with deflated dollars on it?
The Committee also anticipates that inflation will settle, over coming
quarters, at levels at or below those consistent with the Committee’s dual
mandate as the effects of past energy and other commodity price increases
The harm we did with QE2 is going to fade away some more. Sorry
about that one! Inflation won’t be a problem. That’s right, no
wheelbarrow is needed when you go to your bank.
However, the Committee will continue to pay close attention to the evolution
of inflation and inflation expectations.
But we’ll be watching!
To promote the ongoing economic recovery and to help ensure that inflation,
over time, is at levels consistent with its mandate, the Committee decided today
to keep the target range for the federal funds rate at 0 to 1/4 percent.
We are going to do nothing. That’s what we’re going to do –
The Committee currently anticipates that economic conditions–including low
rates of resource utilization and a subdued outlook for inflation over the
medium run–are likely to warrant exceptionally low levels for the federal funds
rate at least through mid-2013.
But wait…we’ll do something new, which is to give you a time table
for doing nothing! Except for the fact that the word “likely” gives us an
easy out for this one if inflation does in fact explode in our faces. You
think we’re stupid? We didn’t think so.
The Committee also will maintain its existing policy of reinvesting principal
payments from its securities holdings.
We won’t buy any more Treasuries, but we sure won’t flood the market
with those that mature. Clever huh?
The Committee will regularly review the size and composition of its
securities holdings and is prepared to adjust those holdings as appropriate.
Who knows what we could do? We might just go for QE3, but we
are sure as heck not going to print that here.
The Committee discussed the range of policy tools available to promote a
stronger economic recovery in a context of price stability.
We have other tricks we have not inflicted on the world and we
have….shhhhhhhhh! don’t tell anybody OK, from our lips to your ears….QE3…What was that? QE3..shut up already! Yes, we know that’s not really new, just has a 3 instead of a 2!
It will continue to assess the economic outlook in light of incoming
information and is prepared to employ these tools as appropriate.p>
We have a guard at the door watching Main Street. We are not
afraid to use the tools in our shed if the guard tells us there is trouble out
there where “you people” live.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;
William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Sarah
Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.
Voting against the action were: Richard W. Fisher, Narayana Kocherlakota, and
Charles I. Plosser, who would have preferred to continue to describe economic
conditions as likely to warrant exceptionally low levels for the federal funds
rate for an extended period.
Three of us also would have preferred to throw eggs or maybe a cream
pie at Ben. Three of us did not want to promise the length of time we’ll
keep rates low, because we don’t think we can predict the future, which we obviously cannot; otherwise, we never would have done QE2. Three of us are smart. Those other guys….well,…you know…a few oars short of a crew team…
P.S. I suspect the Fed is doing it’s best and sincerely believes in its policy. The disagreement among Fed members does suggest that some members, like me and maybe you, believe the Fed should be doing less, not more.
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