As a public service, here is a translation of the most recent FOMC statement into simple English.
"The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 1-1/4 percent."
Banks who are short on equity will now be allowed to borrow money at 1.25%, one day at a time, without putting up any collateral. Of course if you, the consumer, want to borrow money on those terms you'll be paying more like 12% to 20% in interest, from credit card companies, or more from your local loan sharks.
"The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity."
This artificially low rate is still stimulating the economy by allowing bankers to make easy profits, even though the economy is growing rapidly. We want to boost the economy as much as possible in an election year, but recognize that if we stimulate the economy too long we'll cause runaway inflation which will harm the economy in many ways and be especially bad for banks.
"The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid pace and labor market conditions have improved."
Since the last meeting, in early May, the economy has grown and the situation for working American's have improved. Of course this doesn't in any way measure the long term health of the economy given the tremendous overstimulation of the recent past. It does, however, provide an excuse for us to start raising rates without overly upsetting incumbent politicians.
"Although incoming inflation data are somewhat elevated, a portion of the increase in recent months appears to have been due to transitory factors."
Inflation has been rising, but we can dismiss some of the reasons for that because they are only temporary. For the purpose of this statement we choose to completely ignore the permanent factors behind the rise in inflation as well as the role of our past monetary policies.
"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal."
We are equally screwed in regards to both economic growth and inflation. We are dammed if we raise rates and dammed if we lower them. The best we can do is lie to the public about inflation and growth prospects in the hopes that the bond market won't collapse and drive up the cost of government debt service.
"With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured."
Based on the narrow, distorted view of inflation we hope to promote, we figure we can get away with raising rates to more sensible levels very, very slowly.
"Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."
If inflation does begin to rise rapidly, our priority is to just screw the economy and protect creditors (banks) who have lent money at low long term rates from losing too much ground to inflation.
"Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Thomas M. Hoenig; Donald L. Kohn; Cathy E. Minehan; Mark W. Olson; Sandra Pianalto; and William Poole."
This committee, made up entirely of bankers, and appointed by bankers and politicians beholden to bankers, unanimously believes that this policy is in the best long and short term interests of bankers.
"In a related action, the Board of Governors approved a 25 basis point increase in the discount rate to 2-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco."
Banks borrowing from the regional Fed banks will now have to pay 2 1/4% for short term loans. All the regional Fed banks think this raise in rates is a good idea because the old rate was unsustainable and many banks were taking on too much long term risk based on the huge spread between short term and long term rates.
solariactionnetwork.com |
