“The FOMC is not a body that suffers from group think” – Fed Chair Janet Yellen. Normally I have to wait to read the FOMC Minutes some 3 weeks after the FOMC meeting to be stunned at the ridiculous language used to cover up the fact they have no idea. I reported last time that the Fed said “The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff’s assessment that both monetary and fiscal policy appeared to be better positioned to offset large positive shocks than adverse ones.”
In the press conference Yellen said “Why didn’t we raise”? It does not reflect a lack of confidence in the economy…let me try to set out again…we are generally pleased with how the US economy is doing… evidence is that the economy is expanding more strongly…we don’t see the economy as overheating now…we continue to progress toward our objectives”.” The last sentence beggars belief. If the FOMC keeps lowering forecasts I would argue the objectives are progressing toward you. That’s right you have to cut forecasts to make it sound as though you have credibility.
If things are so peachy why has the Fed lowered its 2016 and long term GDP growth target to 1.8%? One reporter sensibly asked “if you’re cutting growth predictions, where is the inflation coming from?” Yellen suggested that the risk of labour market tightness with a healthy hiring outlook but lower productivity.
I thought the use of the word “overheat” by Yellen several times was mind boggling. If the US economy is at risk of overheating on 0.37% rates and you’ve just cut forecasts to 1.8% long term growth, what does that suggest for a normal operating GDP level? There is no way anyone can take central bankers seriously. The language she used in the press conference was a total fiction.
I updated the following chart on US unemployed persons which shows ominous signs of picking turning points of economic weakness over the last 60+ years. Since May 2016, the number is up over 400,000. It will be interesting to see if the September labour stats due in early October show unemployed rising north of 8mn. We’ll know soon enough.