As I said early Wednesday morning, this was way to easy to predict.
Let us begin tonight’s journey with a quick review of the FOMC statement issued today with the blunderfest highlighted in italics and bold print by yours truly.
June 14, 2023
Federal Reserve issues FOMC statement
For release at 2:00 p.m. EDT
Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5 to 5-1/4 percent. Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. The Committee is strongly committed to returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Austan D. Goolsbee; Patrick Harker; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; and Christopher J. Waller.
Let us dissect the highlights one at a time.
Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated.
Inflation remains embedded, but let us analyze the “job gains have been robust” commentary. Statistically that is accurate because of the Census Departments antiquated methodology, but realistically when one starts to break down the numbers in reality, even the estimated ones reported on, most of the new jobs are seasonal and not long term high paying career jobs. The jobs that have been created are low income service industry related portions of the employment build, primarily in entry level positions versus long term careers.
The U.S. banking system is sound and resilient.
Mr. Mozillo and Janet Yellen thank the Federal Reserve Open Market Committee for digging that tried and true rerfrain up from 2008.
Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.
Actually, no. Any college sophomore finishing up their Econ 102 class is pretty damned certain of the effects and impacts of tighter credit conditions. Nice attempt to put some lipstick on that pig of a statement.
The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
Translation: We do not have a clue what to do until the political elites tell us what to do because we really don’t have a damned clue what we are doing nor have we bothered with reading the 1970’s Greenbooks which would have given you clowns a primer on what to do.
This excerpt from the July 1980 Greenbook of the Federal Reserve should provide a moment of reflection based on the recent reports and Fed statement today:
Granted, I am being quite selective, but the inflation impulse once thought conquered during the 1970’s came back with a vengeance shortly after this Fed statement. It was not until Volcker decided to salvage the US Dollar and spike the economy did in fact inflation come under control.
There is no indication of this type of discipline with today’s Fed decision. If anything it is more reflective of the callous political based decisions of Bernanke, Yellen, and yes, even Arthur Burns; a name Powell has desperately avoided trying to have any comparison to.
So why the “pause” today?
If inflation is not below the target level or below the Fed Funds Rate, then it is not under control nor about to be contained. Hence the only view which I highlighted earlier this morning is that the Fed along with their political allies in both parties including the White House, would rather gamble America’s economic future on a weakening dollar, an illiquid bond market, and a bubble in variable assets such as equities, real estate, and speculative instruments of all types. This will end in disaster.
The lack of disciplined individuals with a deep understanding of monetary policy and cycles within supercycles provides the weak and easy out of just gambling on the “inflation will burn itself out” theory of economics, first tried in the 1970’s. Thus there will be no more rate increases as long as Powell remains the Fed Chairman.
This is the cost of not having economists or experienced bankers on the FOMC and soon America will learn that the price will be one more inflationary impulse; one strong enough to crash the economy and demand further while creating a societal and political nightmare in 2024.
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