Minutes of the July 25-26 FOMC Meeting show internal concern over the Fed’s inability to hit 2% inflation.
I counted 89 instances of “inflation” and 79 instances of “2”. As sub-categories of 2, there were 27 instances of “2 percent” and eight instances of “below 2”.
“Longer” came up 26 times. “Transitory”, a previous standout, only came up twice. “Idiosyncratic” a new buzzword courtesy of the Cleveland Fed, came up once.
Transitory
- Beyond 2017, the forecast was little revised from the previous projection, as the recent weakness in inflation was viewed as transitory.
- Some members stressed the importance of underscoring the Committee’s commitment to its inflation objective. These members emphasized that, in considering the timing of further adjustments in the federal funds rate, they would be evaluating incoming information to assess the likelihood that recent low readings on inflation were transitory and that inflation was again on a trajectory consistent with achieving the Committee’s 2 percent objective over the medium term.
2 Percent
- Market participants also took note of the summary in the June minutes of the Committee’s discussion of the progress toward the Committee’s 2 percent longer-run inflation objective and the extent to which recent softness in price data reflected idiosyncratic factors.
- The staff continued to project that inflation would increase in the next couple of years and that it would be close to the Committee’s longer-run objective in 2018 and at 2 percent in 2019.
- On a 12‑month basis, both overall inflation and the measure excluding food and energy prices had declined and were running below 2 percent.
- In light of continued low recent readings on inflation, participants expected that inflation on a 12-month basis would remain somewhat below 2 percent in the near term. However, most participants judged that inflation would stabilize around the Committee’s 2 percent objective over the medium term.
- Still, most participants indicated that they expected inflation to pick up over the next couple of years from its current low level and to stabilize around the Committee’s 2 percent objective over the medium term. Many participants, however, saw some likelihood that inflation might remain below 2 percent for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside.
- Participants agreed that a fall in longer-term inflation expectations would be undesirable, but they differed in their assessments of whether inflation expectations were well anchored.
- Most saw the outlook for economic activity and the labor market as little changed from their earlier projections and continued to anticipate that inflation would stabilize around the Committee’s 2 percent objective over the medium term. However, some participants expressed concern about the recent decline in inflation, which had occurred even as resource utilization had tightened, and noted their increased uncertainty about the outlook for inflation.
- They observed that the Committee could afford to be patient under current circumstances in deciding when to increase the federal funds rate further and argued against additional adjustments until incoming information confirmed that the recent low readings on inflation were not likely to persist and that inflation was more clearly on a path toward the Committee’s symmetric 2 percent objective over the medium term. In contrast, some other participants were more worried about risks arising from a labor market that had already reached full employment and was projected to tighten further or from the easing in financial conditions that had developed since the Committee’s policy normalization process was initiated in December 2015.
Absurd Discussion
I added a bonus bullet point above regarding “assessments of whether inflation expectations were well anchored.”
Good, grief, how ridiculous. Yet, this collection of group-thinkers believes in such nonsense.
The entire discussion is absurd.
These clowns sit in a room and get to decide the proper level of inflation, how to measure it, and how to hit their target.
The idea that anyone should have the power to do this is idiotic. There is no sound reason for 2% inflation, and even if there was, there is no way to properly measure inflation because all price-related measures exclude asset bubbles.
Mainstream Media Silliness
Mainstream media was all over the minutes of the meeting today slicing and dicing the Fed Comments.
- CNN Money reported Fed leader: We’re halfway there on interest rate hikes.
- Reuters reported Fed policymakers grow more worried about weak inflation.
- Bloomberg reported Fed Starts to Wonder If Cornerstone Inflation Model Still Works.
CNN Money missed the mark badly. It was not the “fed leader” but rather San Francisco Fed President John Williams who said we were halfway there.
Bloomberg implies the Cornerstone Inflation model ever worked. It never did. Reuters at least had an accurate headline.
None of them commented on the outright absurdity of the notion that a collective group of appointed wizards could divine the proper rate of inflation and come up with economic policies that would do just that.
Solving the Inflation Puzzle
Creative Nonsense
Those hoping to solve the inflation puzzle can do so here: Central Banks Puzzled as Global Inflation Hits Lowest Level Since 2009: Solving the Puzzle.
Also consider “Oh That Elusive” Inflation!
Those seeking to mock Cleveland Fed creative nonsense may wish to consider: “Idiosyncratic and Transitory Factors” Holding Down Inflation: New Definition of Transitory
As protection against Fed policies, it’s wise to own some gold. In case you missed it, please consider How Much Gold Should the Common Man Own?
MIke “Mish” Shedlock
Try running a business and you will experience the real inflation
Totally. I’ve seen prices jacked up left and right since 2015 except for retail goods such as clothing.
Those troops are not the sharp knives in the drawer — especially the chair.
C
CPI is not inflation, its a bureaucrat’s statistic (and not a good one).
PCE is not inflation, its a bureaucrat’s statistic (also not a good one).
Since they cannot even measure the problem, obviously they will never be able to fix it.
Its 3000 economics PhDs trying to navigate with a faulty compass
“Its 3000 economics PhDs” feeding at the money trough, and biding their work time behind desks waiting to collect fat pensions at age 55. The 2% inflation game gives them something to do, when not busy crashing the economy. The solution is making them all part of the USA Russian embassy staff, so Putin can fire them.
Substitutions and Hedonics: Inflation Data Absurdities
Jan. 24, 2007 Barry Ritholtz
https://seekingalpha.com/article/24933-substitutions-and-hedonics-inflation-data-absurdities
Just as a study that I saw mentioned ONCE, somewhere, found that after the market spikes caused by the release of gov economic data the vast majority of those figures are later adjusted DOWNWARD which would indicate a far too optimistic upward bias in those figures, you could be certain that the result of the Boskin Commission below would NEVER find that the reported CPI was too LOW. Isn’t it strange how the “improved accuracy” never goes in the direction that would negatively affect the interests of those commissioning the study?:
Toward A More Accurate Measure Of The Cost Of Living
FINAL REPORT to the
Senate Finance Committee
from the
Advisory Commission To Study
he Consumer Price Index
DECEMBER 4,1996
https://www.ssa.gov/history/reports/boskinrpt.html
Excerpt:
The CPI is the basis for Social Security COLAs and this recommendation, if adopted, would reduce future Social Security COLA increases, as well as impact numerous other government programs.
5. Changes in the CPI have substantially overstated the actual rate of price inflation, by about 1.3 percentage points per annum prior to 1996 (the extra 0.2 percentage point is due to a problem called formula bias inadvertently introduced in 1978 and fixed this year). It is likely that a large bias also occurred looking back over at least the last couple of decades.
6. The upward bias creates in the federal budget an annual automatic real increase in indexed benefits and a real tax cut. CBO estimates that if the change in the CPI overstated the change in the cost of living by an average of 1.1 percentage points per year over the next decade, this bias would contribute about $148 billion to the deficit in 2006 and $691 billion to the national debt by then. The bias alone would be the fourth largest federal program, after social security, health care and defense. By 2008, these totals reach $202 billion and $1.07 trillion, respectively.
Here is how the Fed makes important policy decisions:
https://m.youtube.com/watch?v=wz-PtEJEaqY
You given them way too much credit.
How about measuring the things accurately and, oh yeah, looking at all those things your precious 1% spend their money on. If you would bother to take a look at the people who have access to the torrent of currency and debt spewing from your never stopping spigot you might see the actual inflation.
https://www.forbes.com/sites/andreamurphy/2016/10/05/the-expense-of-exclusive-living-the-forbes-400s-cost-of-living-extremely-well-index/
HOW EXPENSIVE is the 1% lifestyle? For the past 40 years FORBES has answered that with our Cost of Living Extremely Well Index (CLEWI). The basket of 40 luxury items has been recession-proof, rising every year since 1982–and growing again by 2% in the past year. Overall the cost of living large has outpaced inflation, increasing annually by an average 5% since 1982, compared with 3% for the Consumer Price Index. The rich can afford it, though: The average net worth of The Forbes 400 has increased 950% over that same period.
If the Fed, the DNC, and the Neo-con War Mongers all achieved their goals, the USA would likely be a meld of Weimar Germany inflation, post-Hillary Libya rubble, post-nuke Hiroshima, and Stalinist gulags for surviving irredeemable deplorables and those deemed white supremacists by the mainstream media. North Korea is a bastion of conservative rationality, in comparison to USA mass-media group think.
Those taking the CPI numbers that are currently being reported to heart are vulnerable to future economic risk. We should be aware the numbers government pumps out today are the result of changes made in the 1990s when political Washington moved to change the nature of the CPI.
The aggregate impact of the reporting changes since 1980 has been to reduce the reported level of annual CPI inflation by roughly seven percentage points meaning there is no question as to the understatement of inflation. The effects are cumulative going forward so, over time the CPI has become less of a reflection of true inflation. More on this subject in the article below.
http://brucewilds.blogspot.com/2017/07/the-cpi-understates-inflation-and-skews.html
What is more of a concern to me, is that you seem to be one (if not the) last voice that I hear in this vast ocean of idiocy, that has it right. Majority opinion or popular opinion does not make a “thing” a fact or “right”, but that seems to be getting lost in/on the vast numbers of “intelligent” beings. Very scary possibilities here…………………………
“What is more of a concern to me, is that you seem to be one (if not the) last voice that I hear in this vast ocean of idiocy, that has it right.”
Not to steal any well deserved praise from Mish, but there are PLENTY of bloggers who know the emperors have no clothes. Thing is, the people in a position to actually change things are those who benefit most from the charade.
Plenty indeed.
Scores of them on the list of 200 news outlets The Washington Post wants banned.
Mish’s restraint is reflected in the fact he somehow did not make that list. Though he was probably #201 and just missed the cut.
No inflation? No problem, just trap everybody in the digital deflation matrix.
How are these jackasses paid? From tax-payers money I assume. Are they worth it? IMO, not worth a brass farthing.
Every once in a while they come up with some useless predictions, meet here and there, give lectures here and there, come up with a minutes of a meeting which just rephrases words from an earlier meeting, blow bubbles that burst, screw savers, pensioners and tax-payers , give money hand over fist to banksters who should have been jailed and are as pompous as one can ever be despite being clueless. All this is done under the guise of helping main street. And we put up with it.
Once upon a time there was a “No taxation without representation” movement. Probably the time has come for the tax-payers to start a “No taxes for jackasses” movement. Jackasses would be politicians and bureaucrats. These guys do arrogate too much to themselves be it power or credit. Is it not time to boot these jackasses out?
Just reading about these idiots makes me want to vomit….
“Michael Krieger @LibertyBlitz
What the entrenched political class is doing now, is exactly what the Fed did after the crisis. Posing as saviors to a disaster they created
9:01 PM – Aug 16, 2017 “
“Michael Krieger @LibertyBlitz
What the entrenched political class is doing now, is exactly what the Fed did after the crisis. Posing as saviors to a disaster they created
9:01 PM – Aug 16, 2017 “
I see the FOMC as analogous to Merton & Scholes at LTCM.
Clueless highbrow window dressing for an otherwise simple sleazy racket.
There is NO INFLATION at all nor will there be any inflation in the foreseeable future which is in a GLOBAL DEFLATIONARY SPIRAL which will intensify as asset prices decline across all or nearly all asset classes including commodities, equities (stocks), and real estate. But that has nothing to do with the Federal Reserve moving the only 3 interest rates they set – none of which have anything at all to do with the US economy – back up to at least the 3% level. Those 3 rates are 1) Federal Funds Rate at which banks borrow from each other strictly for liquidity purposes (which is practically never used), 2) Federal Discount Rate at which the banks can borrow directly from the Federal Reserve (which is never used and always 0.50% above the Federal Funds Rate), and 3) IOER which is Interest On Excess Reserves which is what the Federal Reserve pays to member banks who have more than $2.5 trillion in their EXCESS RESERVES accounts inside the Federal Reserve.
Even IF these IYIs (Intellectual Yet Idiots) could achieve their magical 2%, inflation will NEVER work when the debt continues to grow at a greater rate rather than being paid down!
They are so far up their own backsides (sorry Mish, but this is how strongly I feel about them) with their supposedly oh-so-complex-you-wouldn’t-understand models and theories they have no sight at all of the real world. And they actually believe themselves!
There is absolutely NO difference between seeking inflation but not paying the debt to me having a 10,000 a year job with 10,000 in debt getting a better job paying 20,000 a year but then increasing my debt by buying new cars, holidays, new bigger TV and so on.
DavidC
Fraction Reserve Banking requires inflation. On sound money system there is no requirement of inflation. But politicians would not like the restrictions as shown over and over since Chinese introduced paper money.
Ding, ding, ding – we have a winner. Give that man a cigar!
It is the fraudulent nature of our current “debt-money” system that requires constant inflation and ever-increasing amounts of new debt/money creation.
Such a system has a shelf-life (Nixon did say he was “temporarily” closing the Gold window 46 years ago) – which we have long since passed. Making an unsustainable, broken system appear to be viable is not an easy job.
Heh. Drudge finally notices:
https://www.bloomberg.com/news/articles/2017-08-17/-smokey-and-the-bandit-charm-fades-as-truck-driver-hiring-lags
I make decent money, but when I adjust it for inflation over the past three decades, it is not the multiple of my first salary out of school that justifies all the money I blew on B-School and other certifications and lots of long and late hours.
I’d like to say I should have become a truck-driver, but they seem to have it worse.
If they don’t see inflation, it’s because they’re not looking in the right places. Every form of insurance I have to buy, medical, homeowners, automobile, is going up in cost. We pay more for groceries. And, of course, property taxes are rising relentlessly. These are recurring expenses. It really doesn’t matter that items like flat screen televisions are becoming less expensive.
“…some other participants were more worried about risks arising from a labor market that had already reached full employment…”
The labor market has not reached full employment. The U-3 unemployment rate is artificially low, the same as the FED rate has been artificially low.
What do you think they were going to say? A group of people (the fed) with similar habit of thought that mechanically
Responds to a state of affairs certainty is not conscious and aware enough to see anything. If you understand they don’t even know how automatic their own thoughts are, then best practice is to ignore them as like many before them
They will get it wrong and the markets will sink. Animals have a better grasp on reality than them.
“Minutes of the July 25-26 FOMC Meeting show internal concern over the Fed’s inability to hit 2% inflation.”
The FED simply cannot escape the laws of math and human nature.
When I was growing up, my extended family had dinner every single Sunday at my Grandmother’s house.
My mom or Grandmother would cook a roast and rice and gravy and corn and green beans and biscuits…the usual southern stuff.
I noticed that every Sunday whether my mom or my Grandmother was prepping the roast, they always cut about 1/2 inch off of either end before browning it and putting it in the roasting pan.
One day I asked my mom why. She said it was because that’s how she learned to do it from my Grandmother – who piped in that it was how she learned to do it from her mom – my great Grandmother.
A month or so later we all traveled north to visit my great Grandmother and I asked her why they cut the ends off the roast.
She replied: “Well, I don’t know why they do it, but I did it because my pan was too small for the roast to fit.”
So my mom and Grandmother – without knowing why – were doing something unnecessary that wasted a half pound of edible pork roast because it’s what they were taught. Neither of them ever stopped to think or ask why…
Most economists of today are doing nothing more than cutting the ends off the roast.
(This is not a true story – it didn’t happen in my family. This is a story I was told to illustrate the dangers of simply doing something without knowing why. A lot like the monkeys, bananas, and fire hose story.)
Health insurance up about 15% annually each year for the last 5 years. Insurance is about 20% of my spending. Works out to 3% inflation in total spending increase for me because of health insurance premiums alone. I don’t think I am a special case here. How is it possible to make an inflation index show less than 3% unless the unlikely case that all other spending is deflating at 1%. Fed just needs to use my index and their job will be done. No further worries about inflation needed.
Tell us where you live that you ONLY get 15% health insurance increases… everyone is going to want to move there.
The national average is 30% (actually 30.2%) increase per year.
Also, you said nothing about deductibles. If your insurance went up (???) 15%, but you had to pay twice as much out of pocket to hit your deductible, then your true increase was a lot more than 15% (you paid 15% more but got only half the benefit).
Obamacare will be repealed, or the country will collapse into civil war / economic chaos. Its just basic math.
No country on Earth ever had (ahem, cough) consistent 15% yoy economic growth, never mind the 30% insurance hikes the average US taxpayer has seen
My point – if the fed wants a target of 2% inflation they already have greatly exceeded it if they include health insurance premiums. In my case of lower income, self insured, grandfathered very high deductible and most likely for everyone else considering the national averages you mentioned.
So this should theoretically be a green light for Fed interest rate increases. Of course raising interest rates will probably not change health care pricing much as it’s monopoly priced in general..