Amazing that anybody gives these clowns any credibility at all! All their bogus crackpot theories laid bare:
Fed Minutes Offer More Confusion Than Clarity: John M. Berry
April 13 (Bloomberg) -- Minutes of the March 22 Federal Reserve policy making meeting released yesterday provided, once again, a gold mine of information about the sometimes messy business of making monetary policy.
Unfortunately, some of the discussion detailed in the minutes seems to vitiate the meaning of both the familiar balance- of-risks assessment and the sentence regarding removal of policy accommodation at a ``measured pace'' in the statements issued following each meeting of the Federal Open Market Committee.
In this complex situation, there appears ultimately to be more confusion than communication.
One thing is clear: A careful reading of the minutes suggests that the committee is far more likely to raise the target by 25 basis points rather than 50 basis points when it meets May 3.
Right after the committee met March 22, it issued a statement indicating officials were becoming more concerned about inflation. Just how concerned wasn't clear, in part because of some unusual changes in the usual working of such statements.
Was the FOMC warning that, after raising its target for the overnight lending rate by a quarter-percentage point at seven consecutive meetings, a half-point increase was likely the next time around? Outsiders could only speculate.
Not All Happy
Indeed, a lot of committee members went away from the March 22 meeting not at all happy with the wording of that statement, which was a compromise reached after extended discussion, the minutes indicate.
The conclusion that the committee probably will increase the target by 25 basis points is reinforced by numerous pieces of data released in recent weeks pointing to somewhat slower growth, including big increases in gasoline prices that may cause consumers to trim spending and the rising trade deficit.
Part of the officials' heightened concern about inflation shown in the March 22 statement was due to the unexpectedly strong performance of the economy in the first quarter, according to the minutes.
On the other hand, the Commerce Department said yesterday that the U.S. trade deficit jumped to a record $61 billion in February, which caused a number of economists to mark down their forecasts for first quarter GDP.
Meanwhile, forecasters have also been scaling back their predictions for second and third quarter gross domestic product, saying that soaring gasoline prices will cause consumers to trim their spending on other goods and services.
Watching Inflation
At the March 22 meeting, ``many participants said that circumstances had changed from those anticipated at the time of the committee's meeting in early February. In particular, income data and anecdotal information indicated that economic activity had appreciably more forward momentum than previously perceived and that inflation pressures could be intensifying,'' the minutes said.
``While underlying inflation appeared to have moved up only modestly and nearly all participants thought that core and total inflation going forward would be relatively low, they had become less certain of that outlook for the next few quarters,'' the minutes said.
On the other hand, some of the forces holding inflation in check were still there.
``Although the required amount of cumulative tightening may have increased, members noted that an accelerated pace of policy tightening did not appear necessary at this time, as a degree of economic slack apparently remained, productivity growth would probably continue to damp increases in unit labor costs and prices, and inflation would most likely be contained,'' the minutes said.
``In these circumstances, committee members judged that the measured removal of policy accommodation was appropriate for now,'' they added.
Explaining It
And then the minutes got to the messy part: What to tell the public about how the committee regarded the risks to sustainable growth and price stability.
After the previous six meetings, each statement had included this sentence: ``The committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal.''
Last month, that sentence was changed to read, ``The committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal.''
That language presumably was in one of the draft statements presented to the committee by Chairman Alan Greenspan. The point of the new language, the minutes said, was ``to make the committee's assessment explicitly conditional on an assumption of appropriate monetary policy so as to underscore that maintaining balanced risks would require policy action.
The Meaning of Change
``It was noted that the committee assessment of balanced risks over the past nine months -- a period in which monetary policy had been steadily tightened -- necessarily had to be interpreted as based implicitly on an assumption that policy accommodation would be removed,'' the minutes continued.
In other words, all the change in wording was intended to make explicit something that everyone already regarded as implicit.
That was one reason why the wording in the statement was so puzzling in the first place. What did the change mean? Obviously it was supposed to signal that the Fed would do whatever is necessary to keep inflation under control.
Unfortunately, the new wording has left the committee with a new problem. How on earth could the risks to sustainable growth and price stability ever become unequal? Wouldn't that be the same as admitting that even with ``appropriate monetary policy'' the Fed couldn't keep things under control?
``A number of members believed the formulaic language by its nature was too rigid to reflect evolving economic circumstances in a satisfactory manner, especially when developments were subtle or complex, and some of these members believed that the risk assessment in the policy announcement following this meeting should be discontinued,'' the minutes said.
Eventually even those members went along with the changes.
That Sentence
Finally, there was the issue of the sentence included in the statements at every meeting over the last 12 months, that ``policy accommodation can be removed at a pace that is likely to be measured.''
Again, some members wanted that sentence dumped, as they have all along, arguing that it ``could constrain future policy inappropriately'' if larger rate increases were called for. ``Some discomfort was expressed with language that related so explicitly to the likely trajectory of future policy action,'' the minutes said.
Nevertheless, the sentence was retained. Still, the market has come to interpret it as meaning that rates may go up at a quarter-percentage point at a meeting. That's not the way the Fed officials see it, according to the minutes.
``Members noted, however, that the existing `measured pace' language was clearly conditional on the economy evolving in a way that promised a gradual return to high levels of resource utilization and on inflation remaining low, and thus believed that the wording did not rule out either picking up the pace of firming or pausing in the process of removing policy accommodation should circumstances warrant,'' the minutes said.
It is hard to escape the conclusion that without a further major change in language, the risks to sustainable growth and stable prices can never become unbalanced, and that removing policy accommodation at a measured pace would be consistent with anything except cutting rates.
Or maybe it all means something else. |
