The FED continued its practice of hiking at a “measured pace” today.
As usual people keep pouring over tiny differences in wordings by the FED looking for nirvana.
Ooooohhhh! He left out “is” what does that mean?
Ahhhhh! “Measured” is still there.
Oh! They left off a statement about “inflation expectations”.
La La! No it was accidental.
No sooner than the words come out than people interpret (or misinterpret) a whole bunch of nonsense from what I think is a whole bunch of FED fools.
At 3:56 I was watching a mini-ramp job and 50K eminis trade. It just so happens that the FED issued a statement saying they “inadvertently omitted” a line from their statement saying “long term inflation expectations are well contained”. The mini-ramp started just prior to that.
This FED has about ZERO credibility in addition to ZERO foresight and terrible hindsight and people think a word change is relevant. Are the markets so precarious that we have to worry about the meaning of “is”?
Anyone that thinks the FED has any credibility needs to read this missive about FED Bubble Talk from 1999.
OK but does the FED have ANY clues as to what lies ahead now?
Let’s review the minutes of the last meeting and see if we can spot anything.
Here are some highlights from the previous FOMC minutes:
Recent information suggested that price inflation might be picking up slightly and only partly as a direct result of increases in energy prices. Consumer prices recorded sizable step-ups in February and March.
The Committee adopted a directive that called for a slight tightening of conditions in reserve markets consistent with an increase of ¼ percentage point in the federal funds rate. The members saw substantial risks of rising pressures on labor and other resources and of higher inflation, and they agreed that the tightening action would help bring the growth of aggregate demand into better alignment with the sustainable expansion of aggregate supply. They also noted that even with this additional firming the risks were still weighted mainly in the direction of rising inflation pressures and that more tightening might be needed.
Financial markets seemed to have recognized the need for real interest rates to rise further under these circumstances, and while market assessments were not always correct, the evidence suggested that a more substantial tightening at this meeting was needed to limit inflation pressures.
Looking ahead, further rapid growth was expected in spending for business equipment and software.
The members agreed that the balance of risks sentence that would be included in the press statement to be released shortly after this meeting should indicate, as it had for other recent meetings, that even after today’s tightening action the members believed the risks would remain tilted toward rising inflation.
That’s a pretty compelling case for inflation is it not?
Here is the full text for anyone wanting to look at the entire summation of the previous FOMC minutes.
Just one small thing……
I need to correct a SLIGHT error about those minutes.
I said those excerpts were from the previous FOMC minutes. I meant to say those excerpts were from the May 16, 2000 FOMC minutes.
Here is what happened next: Over the next 18 months CPI dropped from 3.1% to 1.1%, the US went into a recession and capex spending fell off the proverbial cliff.
Credit for this idea belongs to Scott Reamer on Minyanville. You can check out Scott and all of the other Minyanville professors here. Tell them Mish sent you.
Let’s now fast forward to today’s action. Does it look to you like history is about ready to rhyme? It sure does to me. If the FED was so far off base in May of 2000 what makes anyone think they are on target now? In short order the FED has gone from irrational exuberance to fear of deflation, to balanced risks and finally AFTER 8 hikes and 200 bps of tightening they are just now worried that the inflation cat is out of the bag.
Is it possible to be more “rear view thinking” than that? We already showed the FED was openly discussing bubbles all the while Greenspan was denying them! It is rather obvious that a number of FED governors as well as Mr. Greenspan himself were well aware of the heated bubble in tech stocks in 1999.
In spite of that fact and in spite of fact the FED openly discussed the fact that “Things that can’t go on, won’t.”, the FED still could not see what was coming at them in May of 2000. How could the FED possibly been more wrong in May of 2000? How could anyone find them credible after blatantly lying about bubbles? Yet people insist on pouring over meaningless word changes from a FED that is clearly wordsmithing to achieve a particular market reaction.
Is the FED really in a conundrum or do they just claim to be? As for me, I am in A Conundrum About Conundrums. Is the FED attempting to be “transparent” or attempting to feed us a bunch of *? If it was necessary to correct that “error” did it need to be done heading into the close with the market trading at the lows? Just asking.
On a different subject I have decided that I am wrong. China needs to revalue the RMB starting now! They should do so at a “measured pace“. I propose China revalue the RMB up 1/4% every quarter. That would probably drive out the hot money that China wants to exit. Who would want to stick around for such feeble returns? After the hot money is long gone, then China could then in its own timeframe float the RMB.
Right now, if the US markets are in such a piss poor state of affairs where every nuance from a FED that has absolutely no credibility is somehow vital, China just might be better off playing ball at its own “measured pace”.
Abolish the FED and we will go a long way towards eliminating these problems. The market can decide what rates should be far better than this group of clowns.