Believe it or not there was a day when the Federal Reserve didn’t feel compelled to tell the public a damn thing about what it intended to do with rates. In his actual confirmation meeting, the forum in which a potential Chairperson would be expected to lay out their detailed thinking, Paul Volcker said he’d “have to call the shots as we see them” to fight inflation that was then rising at “a pretty good clip.”
This during a time of double digit inflation. Volcker later made a massive policy change which he announced on the Saturday of a Columbus Day weekend (back when that was a holiday).
From those days of no communication we’ve gone from Alan Greenspan’s fortune cookie obfuscations to Bernanke’s sometimes painful metaphorical journeys down mountains in racecars and landing on aircraft carriers in the dark.
Yet somehow the republic survived. One might even say we’ve evolved in our general economic thinking if not for the awkward fact that scores of otherwise smart people are going to spend a good portion of Wednesday afternoon combing through the FOMC’s statement on monetary policy to see how it differs from the one that came out at the end of July.
It’s a staggering, jaw dropping, monumental waste of perfectly good time and energy. In the attached clip Komal Sri-Kumar of Sri Kumar Global Strategies agrees. It simply doesn’t matter if the Fed sees weakness for a sustained period, notes improvements in recent weeks or any other nuance shifts that have the potential to launch millions of buys and sells across Wall Street.
The Fed is going to end Quantitative Easing next month. Yellen will be critical of Congress for being a bunch of do-nothing hacks. She’ll scold corporations for not spending enough on capital infrastructure investments.
She’ll make her decisions based on the idea that more stimulus is better, inflation is in check and monetary policy has its limits. You can fight that or ignore it but to think she’ll change course now is insane.
Sri Kumar says rates are what matters and they aren’t going anywhere. “There is enough weakness in the economy that the Fed will stay easy,” he says. “Increasing rates is at the earliest a 2016 phenomenon.”
No matter what Yellen says on Wednesday forces beyond our borders or the Fed’s control will continue to restrict economic growth. Kumar ticks through ISIS, Ukraine, Putin, what he thinks will be rising energy prices and the Chinese economy off the top of his head as a list of reasons for a legendarily dovish Fed to keep rates at roughly zero for the foreseeable future.
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