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.
- 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.
- 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.
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
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