Fed's Blather as Expected, No Hikes Through 2023

Mish

Today the Fed released statements following a two-day meeting. There were lots of statement changes but no surprises.

Fed Signals Interest Rates to Stay Near Zero Through ​2023

The WSJ reports Fed Signals Interest Rates to Stay Near Zero Through ​2023. 

Yep, and not a soul is surprised. 

The Wall Street Journal's Statement Tracker shows changes changes since the last meeting.

Statement Tracker Changes

Statement Tracker Chjanges 2020-09-16

Dissents

  • Robert S. Kaplan believes it is "appropriate to maintain the current target range until the Committee is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals as articulated in its new policy strategy statement, but prefers that the Committee retain greater policy rate flexibility beyond that point"
  • Neel Kashkari wants "the Committee to indicate that it expects to maintain the current target range until core inflation has reached 2 percent on a sustained basis".

Commitment to Bubbles

The Fed commits to holding inflation above 2% for some time to make up for errors in the other direction.

This too was expected but it's rather like smashing your right hand with a hammer because you did not smash your left hand hard enough.

Why 2% and not 1% or 4%.

The Fed has never explained. Besides there is no net benefit to inflation but there are winners and losers.

The winners are those with first access to money, the banks and the wealthy. The losers are everyone else. 

This implies the target should be 0%, assuming there should be a target at all.

But there shouldn't be a target because there shouldn't be a Fed. 

Tweets of the Day

Stupidity Still Well Anchored

Today's statement confirm The Fed's Stupidity is Still Well Anchored.

Mish

Comments (10)
No. 1-7
Webej
Webej

"This too was expected but it's rather like smashing your right hand with a hammer because you did not smash your left hand hard enough."

Yup, driving the economy using both feet, one on the gas and one on the brakes, pretending only you can drive this well. No consideration of any wear or tear on the vehicle.

Forcing interest rates down is like spreading water on the streets during a drought ... in order to make it rain, because when it rains, the street is wet.

RunnrDan
RunnrDan

Inflated assets matter!

Mish
Mish

Editor

lost my more recent post - It will be back soon. Publishing error at the Maven

Zardoz
Zardoz

More miracles from the Magic Munchkin!

Eddie_T
Eddie_T

Mish, this is not a really contrarian view.....I agree with everything I ever heard you say about inflation...but I would like to point out a few things I'm sure you know. If you disagree, say so, please.

Inflation favors long term debtors regardless of their net worth, because they get to pay off their loans with dollars worth less than the ones they borrowed. It is true that the wealthy are more likely to use this form of leverage, I suppose. They certainly have better access to cheap credit than the rest of us. (It wouldn't bother me so much if they didn't use it for LBO's, which I think are very destructive.)

Since real inflation is somewhat higher than the reported numbers these days, it probably represents more of an opportunity for those willing to use long term debt to their advantage......than is generally recognized. The downside risk is that deflation tends to strike hard when it does strike...as a discrete negative event or a series of negative events (i.e. crashes) .....that can lead to lost income and debt service difficulties.

Modest inflation (in my view) also helps prevent a currency collapse from our flagrant government overspending, because it amounts to a necessary tax.....an invisible one that most people don't notice or understand.

The banks and the government therefore have an incentive to collude to cause inflation, since both benefit. I have confidence that they can make it happen for a while even in a low growth/no growth environment, if they want to badly enough...but there are very strong deflationary forces in play in our world today. It isn't easy.

I think what it all boils down to is that the Fed is much more worried about the destruction of wealth from a deflationary depression than they are about blowing bubbles...it isn't so much that they like asset bubbles.....but their bond king masters aren't hurt by those....even if working people are devastated.

So more inequality is inevitable, and inflation is going to continue to be something we all have to hedge somehow. It isn't right necessarily, but I don't see it changing by any voluntary means.

sunny129
sunny129

Lower (rates) for longer (at least 2024) but inflation, growth, and rate projections are all 'inconsistent'.
= Fed is clueless!

Six000mileyear
Six000mileyear

Holding rates low until 2023 is as clear an admission from the FED as one will hear that it cannot control the economy. If the FED could control the economy and inflation, both would have been achieved decades ago and and held in tight tolerance, as an properly constructed control system would do.


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