Another Fed Confessional
In reference to statements made by Fed officials that the decline in the price of oil was good for the economy, San Francisco Fed president John Williams now admits “We Got It Wrong“.
Click on the link for a video submitted by Zero Hedge on January 10.
On January 9, Forex Live provided some quotes …
The Fed’s Williams was asked about the impact of oil on the US economy. “The Fed got it wrong when it predicted a drop in oil prices would be a big boon for the economy,” he said. “It turned out the world had changed; the US has a lot of jobs connected to the oil industry.”
More accurately, Williams said “We got this wrong“. The above statements attributed to Williams are not quotes but they are a close paraphrase. I spent quite a while looking for “Fed got it wrong” before finding the above video.
Forex Live also stated “At this time last year the Fed’s Bullard was saying: The ‘oil price drop is very unambiguously positive for US.'”
In Search of Bullard
I searched high and low but could find no such statement by Bullard.
Purportedly that statement comes from a Bloomberg TV interview on January 30, 2015: Bullard Says Rates at Zero Not Right for U.S. Economy.
I played the interview. Bullard made no such statement then, or at any other time, at least that I can find.
Instead, you will find a mess of total nonsense about inflation expectations as well as some statements that are far more reasonable. Bullard did state normal interest rates are close to 4%.
The video conclusion was interesting.
Bloomberg: How confident are you in your forecasts given all the cross-currents out there?
Bullard: Very confident. (laughing). I think forecasting is always a hazardous thing. I think one of the things is you always have to keep in mind is, no matter who you are, you put out a forecast and you know you’re gonna be wrong, because that’s the way the macro economy works. And you have to learn, which direction were we wrong, and how should we shade our forecast next time to try to accommodate that. And that’s the best you can do because it’s a wild bucking bronco to try to forecast the US economy.
Bloomberg: You hope to be less wrong when you put out these forecasts.
Bullard: Yes, less wrong.
Instead of attempting to ride a “wild bucking bronco” with predictions known in advance to be wrong, why should the Fed forecast at all?
Why not let the market sort this out instead of a bunch of purported wizards who essentially admit they don’t know what they are doing?
Could a free market in interest rates possibly have done worse than the dotcom bubble, followed by the housing bubble, followed by the equity and junk bond bubbles we are in now?
Funny Oil Videos
The statement attributed to Bullard may or may not have been made by Bullard, but Larry Kudlow did make that exact statement.
In a CNBC video in November of 2014, Kudlow stated emphatically Drop in Oil Prices is Unambiguously Good.
http://player.cnbc.com/p/gZWlPC/cnbc_global?playertype=synd&byGuid=3000320785&size=450_298 Here is a second Kudlow interview discussing oil. Both videos are downright funny in retrospect.
Crude Weekly Chart
Inquiring minds may be asking “What about those inflation expectations?”
Fear not, I just happen to have the answer from yesterday: Bullard Warns on Weak Inflation Expectations.
By the way, I left out a key snip from the Bloomberg-Bullard interview from last year.
On January 30, 2015, Jim Bullard said “I would expect them [inflation expectations] to gradually come back up. We’ll see. If that doesn’t happen, then I would start to get very concerned that our credibility was eroding and markets were starting to doubt our ability to hit 2% inflation. [pointing a finger in the air, laughing] Which they should not do, because we will hit 2% inflation“.
Emphasis on “will” was Bullard’s.
Today, Bullard is concerned.
I leave you with this question: Is the falling oil price still “unambiguously good” or does it reflect a rapidly sinking US economy?
First Fed Confessional
For a stunning video confessional and transcript, please see former Dallas Fed President Richard Fisher Goes to Squawk Box Confessional: “We Frontloaded a Tremendous Market Rally”
That rally is blowing up now.
Mike “Mish” Shedlock