I told you I’d get you the rest of my Fed meeting notes soon, and (unlike the Fed) I always try to say what I mean.
Most of the little tidbits I gleaned from the latest meeting minutes (go here if you missed my expose earlier this week) are prevarications, obfuscations, or bald-faced lies. Here are a few.
Lie #1: Equities rise and fall because of investor behavior.
Here’s what they said:
Broad equity price indexes rose notably, reportedly reflecting in part investors’ perceptions that tax reform was becoming more likely.
That’s just BS. Markets rise on excess liquidity and fall when liquidity dries up, even a little. That hasn’t happened yet but it’s coming. Meanwhile pundits, financial journos, and economists need “reasons” to fill out their narrative, the narrative they use to sucker you into handing over your hard earned money.
Lie #2: Inflation data influences spending.
I want to interject this quote on the Fed’s fixation on trying to boost inflation.
In discussing the implications of these developments, several participants expressed concern that the persistently weak inflation data could lead to a decline in longer-term inflation expectations or may have done so already; they pointed to low market-based measures of inflation compensation, declines in some survey measures of inflation expectations, or evidence from statistical models suggesting that the underlying trend in inflation had fallen in recent years…
There’s not a shred of evidence that inflation expectations cause consumers to accelerate or delay spending. If this were true, no one would ever buy electronic goods, which are always falling in price.
Lie #3: Our economy’s in great shape!
Fed staff was sanguine about:
…vulnerabilities of the U.S. financial system. The staff continued to judge that the overall vulnerabilities were moderate: Asset valuation pressures across markets were judged to have increased slightly, on balance, since the previous assessment in July and to have remained elevated; leverage in the nonfinancial sector stayed moderate; and, in the financial sector, leverage and vulnerabilities from maturity and liquidity transformation continued to be low.
They were similarly sanguine about the financial sector at the top in 2007.
The staff then reported its economic outlook. They expected employment to rebound, GDP to grow faster, unemployment to continue to decline, and PCE inflation to increase to 2% in 2019. Predicting the future is easy. Just make up whatever you want it to be and voila!
Getting it right is another story of course. The FOMC never gets it right. But they pretend that they do.
They next got into the discussion of the risks that their forecast would be wrong, either high or low. They judged the risk to be balanced on both sides. I agree. The risk is 100%. That’s balanced. We just don’t know which way they’ll be wrong. Will a greater asset bubble blowoff precede the coming economic decline, or is that blowoff now near an end?
I suspect the latter.
The minutes then reviewed what FOMC members said about the same issues. Not surprisingly, they echoed the staff, because they’re just as clueless. For them, only collegiality matters. Real insight isn’t an issue, because no one at the Fed has any. As long as they all agree, they can claim after the fact that “no one saw this coming” just like Bernanke and his idiot cohort did during the 2008 crash. In fact, millions of people saw it coming. Just no one that anybody at the Fed talks to.
There you have it!
What do you think? Malicious falsehood, or pigheaded stupidity?
I have my own theory, which is that the Fed is just nuts.
Enjoy your weekend!