I’ve just read through all 16 pages of the July 26-27 FOMC minutes and boy is the language a treat. Here are some of the stupid things that were written up (and you have to ask yourself would you entrust your livelihoods to these people when they can look you in the eye with this garbage?):
“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.”
Think about those words – “better positioned to offset large positive shocks” – what a load of hooey. If central banks around the world could buy ‘positive shocks’ believe me they would take everyone they could get. Sad thing is with chronically low interest rates, growth is slowing, wages are falling and the RoW is in an even worse position.
The report on the current conditions swings between positive and negative and secretly admitting they have little clue. Every risk they talk of seems skewed to the downside.
“In addition, the staff continued to see the risks to the forecast from developments abroad as skewed to the downside. Consistent with the downside risks to aggregate demand, the staff viewed the risks to its outlook for the unemployment rate as tilted to the upside. The risks to the projection for inflation were still judged as weighted to the downside, reflecting the possibility that longer-term inflation expectations may have edged lower.“
So with that in mind, the US Fed has created its own dilemma. Since raising rates from nothing to next to nothing in Dec 2015, growth has stalled. Q2 came in at half estimates and Q1 was revised below 1%/ Cutting rates from here would be a hugely negative signal for markets and raising rates would brake the economy harder. So they talk the game of scope to raise rates in 2016 yet the minutes don’t give any real sense of confidence that they can carry it out.
They talk up consumer spending but note business investment continues to slow. If businesses aren’t investing because they can’t see the cycle, is it any wonder.
“Business fixed investment appeared to have declined further during the second quarter, with broad-based weakness in equipment and another steep drop in drilling and mining structures…”
This was also a doozy:
“However, during the discussion, several participants commented on a few developments, including….the elevated level of equity values relative to expected earnings, and the incentives for investors to reach for yield in an environment of continued low interest rates…It was also pointed out that investors potentially were becoming more comfortable locking in current yields in an environment in which low interest rates were expected to persist, rather than engaging in the type of speculative behaviour that could pose financial stability concerns.”
Investors getting more comfortable? Are you kidding? As I pointed out in the past in order to hunt for yield poor unsuspecting pensioners are being forced out the quality curve taking on unnecessary risks.
This was also amusing were it not frightening at the same time. For central banks that have next to no credibility remark that they must protect it:
“Ms. [Esther L.] George dissented because she believed that a 25 basis point increase in the target range for the federal funds rate was appropriate at this meeting. Information available since the June FOMC meeting showed solid employment growth, economic growth near its trend, and inflation outcomes aligning with the Committee’s objective. Domestic financial conditions had eased since the U.K. referendum. She believed that monetary policy should respond to these developments by gradually removing accommodation, consistent with the prescriptions of several frameworks for assessing the appropriate stance of monetary policy. She believed that by waiting longer to adjust the policy stance and deviating from the appropriate path to policy normalisation, the Committee risked eroding the credibility of its policy communications.”
The FOMC stands for “Fed Open Market Committee” although I wonder whether it should be “Foolishly Optimistic Myopic Comedians”