Wimpiest Statement Ever
Please consider the Federal Reserve’s January 26, 2022 FOMC Press Release, emphasis mine.
Indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have improved in recent months but are being affected by the recent sharp rise in COVID-19 cases. Job gains have been solid in recent months, and the unemployment rate has declined substantially. Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation. Risks to the economic outlook remain, including from new variants of the virus.
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 keep the target range for the federal funds rate at 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. The Committee decided to continue to reduce the monthly pace of its net asset purchases, bringing them to an end in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $20 billion per month and of agency mortgage‑backed securities by at least $10 billion per month. The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
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 public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Asymmetric Policy
For starters, the Fed is hiding behind Covid. It continues its amazingly asymmetric policy of being hyperactive after bubbles pop but being extremely accommodative until they do pop.
Inflation Thumb Twiddling
Inflation has been raging for well over a year and all the Fed does is admit “Overall financial conditions remain accommodative,” with a pledge to “monitor the implications.“
In the Q&A following the announcement, Jerome Powell reinforced the notion that it will “soon” be appropriate to raise rates and that it needed to monitor the situation while admitting inflation is higher than they like.
Powell stressed the Fed has tools but admitted the it is just now discussing the pace of using them in a follow-up balance sheet question by the Wall Street Journal.
The Fed will discuss size and pace of balance sheet reductions later, after it monitors the impacts.
What’s Going On?
Clearly the Fed is concerned about stock market gyrations but does not want to say so.
Instead, the Fed hides behind a Covid wall with a pledge to “monitor” the situation. When this stock market bubble pops, and it will, a recession will ensue.
Then the Fed will resume hyper-aggressive QE policy, but with little room to cut rates.
The Fed delayed hikes far too long, brewing massive bubbles along the way. It will soon be stuck in a glue of its own making, with no policies that make any sense.
When Will the Fed Break Something?
“Many people think the Fed will keep hiking until it breaks something. I have news. The markets and the economy are already broken by the Fed’s policy errors.”
The Huge Stock Market Bubble Just Popped and the Fed Can’t Rescue It
Forget about the stock market reaction today. It does not matter much.
For discussion, please see The Huge Stock Market Bubble Just Popped and the Fed Can’t Rescue It.
Liquidity has dried up and the most speculative issues have taken the biggest hit. Cathie Wood’s ARK ETF is an excellent example.
The Fed has blown major bubbles and they will pop no matter what the Fed says or does.
Thanks for Tuning In!
Please Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.
If you have subscribed and do not get email alerts, please check your spam folder.
Mish
