Despite my headline, the Fed’s views were mostly sanitized, self-serving nonsense.
Please consider Minutes of the Federal Open Market Committee January 28–29, 2025
Participants’ Views on Current Conditions and the Economic Outlook
In their discussion of inflation developments, participants observed that inflation had eased significantly over the past two years. Inflation remained somewhat elevated, however, relative to the Committee’s 2 percent longer-run goal, and progress toward that goal had slowed over the past year. Most participants commented that month-over-month inflation readings in November and December had exhibited notable progress toward the Committee’s goal of price stability, including in some key subcategories.
Many participants, however, emphasized that additional evidence of continued disinflation would be needed to support the view that inflation was returning sustainably to 2 percent. Regarding the subcategories, housing services inflation, which had remained elevated for much of the previous year, had shown a decline, as had market-based measures of core non-housing services inflation. Several participants noted that some nonmarket-based services price categories, such as financial and insurance services, had shown less improvement, but a few also observed that price movements in such categories typically have not provided reliable signals about resource pressures or the future trajectory of inflation. Several participants observed that core goods prices had not declined as much on net in recent months compared with earlier in 2024.
With regard to the outlook for inflation, participants expected that, under appropriate monetary policy, inflation would continue to move toward 2 percent, although progress could remain uneven. Participants cited various factors as likely to put continuing downward pressure on inflation, including an easing in nominal wage growth, well-anchored longer-term inflation expectations, waning business pricing power, and the Committee’s still-restrictive monetary policy stance. A few noted, however, that the current target range for the federal funds rate may not be far above its neutral level. Furthermore, some participants commented that with supply and demand in the labor market roughly in balance and in light of recent productivity gains, labor market conditions were unlikely to be a source of inflationary pressure in the near future. However, other factors were cited as having the potential to hinder the disinflation process, including the effects of potential changes in trade and immigration policy as well as strong consumer demand.
Participants observed that the economy had continued to expand at a solid pace and that recent data on economic activity, and consumer spending in particular were, on balance, stronger than anticipated. Participants remarked that consumption had been supported by a solid labor market, elevated household net worth, and rising real wages, which had been associated in part with productivity gains. Several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending. A few participants cited continued increases in rates of delinquencies on credit card borrowing and automobile loans as signs of such strains.
In their evaluation of the risks and uncertainties associated with the economic outlook, the vast majority of participants judged that the risks to the achievement of the Committee’s dual-mandate objectives of maximum employment and price stability were roughly in balance, though a couple commented that the risks to achieving the price stability mandate currently appeared to be greater than the risks to achieving the maximum employment mandate.
A few participants noted concerns about asset valuation pressures in equity and corporate debt markets. A few participants discussed vulnerabilities associated with CRE exposures, noting that risks remained, although there were some signs that the deterioration of conditions in the CRE sector was lessening. Several participants commented on cyber risks that could impair the operation of financial institutions, financial infrastructure, and, potentially, the overall economy. Several participants commented on vulnerabilities in the Treasury market, including concerns about dealer intermediation capacity and the degree of leveraged positions in the market. The migration to central clearing was noted by a few as an important development to track in this regard.
Regarding the potential for significant swings in reserves over coming months related to debt ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet runoff until the resolution of this event. Several participants also expressed support for the Desk’s future consideration of possible ways to improve the efficacy of the SRF.
Sanitized Soundbites
The above are sanitized soundbites of what the Fed wants you to know, in a way that the Fed wants you to believe it knows what it is doing.
Notably, the Fed is compelled to cite “progress” despite the fact there has been “negative” progress for four consecutive months.
Year-over-year the CPI the CPI was 2.4 percent in September of 2024. That’s when progress ended. Since them, the year-over-year CPI is up 0.6 percentage points to 3.0 percent.
Core CPI (excluding food and energy) year-over-year was 3.2 percent in June of 2024. It’s made slightly negative progress to 3.3 percent in January, seven months later.
The Fed cited “strong consumer demand” which is amusing in light of the January retail sales report.
Related Posts
February 11, 2025: Trump’s Steel Tariffs Now Will Work as Good as the First Time
Q: How’s that? A: Very poorly.
February 10, 2025: Federal Deficit Is Up $306 Billion Compared to Same Period Last Year
Deficits are rising and Trump will expand them greatly.
February 14, 2025: Retail Sales Crash – Did the Consumer Finally Throw in the Towel?
The Census Department shows huge across-the-board declines in multiple categories, down 0.9 percent overall.
February 12, 2025: CPI Much Hotter than Expected, Core CPI Hotter than Expected
CPI Month-Over-Month Details
- The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent on a seasonally adjusted basis.
- The index for shelter rose 0.4 percent in January, accounting for nearly 30 percent of the monthly all items increase. Rent of primary residence rose 0.3 percent and owners’ equivalent rent was up 0.3 percent.
- The energy index rose 1.1 percent over the month and the gasoline index increased 1.8 percent.
- The food at home index increased 0.5 percent and the food away from home index rose 0.2 percent over the month.
- The index for all items less food and energy rose 0.4 percent.
- Medical care commodities jumped 1.2 percent and medical care services was unchanged.
The above posts were after the FOMC meeting, but they put a spotlight on just how wrong the Fed was.
Inflation matters, not just consumer inflation.
Neither the CPI nor does PCE comes close to describing inflation because a huge chunk of inflation it is not in “consumer inflation”. It’s in asset prices.
The Fed does not understand this critical point, nor do economists in general.
The CPI Is Deeply Flawed and the Fed Feeds those Flaws
On February 17, I commented The CPI Is Deeply Flawed and the Fed Feeds those Flaws
The Fed makes horrendous policy decisions because it does not understand inflation.
Mish Synopsis of the Fed
The Fed cannot fix what what it refuses to see and does not even understand.
I fully believe politicians have encouraged illegal immigration as a way to keep US inflation limited. This has been going on for decades. You notice that once Biden announced he was fighting inflation the flood gates opened and illegals poured in at a record pace. This isn’t a coincident or partisan. They’ve been able to mask the effects of massive money/credit creation by exporting jobs and inviting illegals.
I think we have bypassed the point of no return and cutting off illegals and bringing back jobs will cause structural damage due to high costs of operation. I’m for both of these measures but, unfortunately, the system that has been created depends on these to be in place.
I’m predicting a rocky entry and crash landing ahead. Got Gold?
Breaking News: Alberto Musalem says higher inflation on deck and Fed may go higher if tariffs cause inflation. Checkmate Trump.
I admire MPO45. Thanks MPO.
If you know anything about money and central banking you know that: .”Banks don’t lend deposits. An increase in bank CDs adds nothing to GDP
Bank credit continues to expand, i.e., loans = deposits (growth in the money stock)
See, nothing’s changed in over 100 years. As Dr. Milton Friedman posited; From Carol A. Ledenham’s Hoover Institution archives: “I would make reserve requirements the same for time and demand deposits”. Dec. 16, 1959.
Link: Fiscal Dominance and the Return of Zero-Interest Bank Reserve Requirements (stlouisfed.org)
The only tool, credit control device, at the disposal of the monetary authority in a free capitalistic system through which the volume of money can be properly controlled is legal reserves. The money stock can never be properly managed by any attempt to control the cost of credit. Interest is the price of loan funds. The price of money is the reciprocal of the price level.
Will the bond market rein in Donald Trump?Will the bond market rein in Donald Trump? (archive.ph)
Bond market will more likely start to take note of reduction in runaway Fiscal spending stimulus under Biden.
Fed sticking to its story that they know what they are doing. Dragging their feet and following bonds.
DOGE would be entity that leads Trump administration to have a mechanism to stimulate using what will be deemed excess Tax repatriation.
Am expecting something of economic pull back early in Trump 2 so they can properly apply it to consequences of Biden.
DOGE stimulus checks to counter such a slowdown. Bypass Fed.
Equities showing stress today as interest rate levels above what people can borrow and spend. Selloff in equities will bring down rates.
Upton Sinclair Quote: “It is difficult to get a man to understand something when his salary depends on his not understanding it.”
But, I believe they understand it very well.
And, trade very successfully on that understanding and knowledge.
And, I would bet heavily that the increase in the Fed Govs’ personal net worth would almost certainly prove out this speculation.
Volcker them!!!
Volcker, like Powell, was a nut job. Chairman Paul Volcker, in a 1982 WSJ article was quoted as saying that he “believes in principle the Fed should pay interest on reserves held against deposits on rounds of equity” and “as a matter of principle favors payment of interest on all reserve balances”.
Lawrence K. Roos, Past President, Federal Reserve Bank of St. Louis & past member of the FOMC (the policy arm of the Fed) as cited in the WSJ April 10, 1986 “…I do not believe that the control of money growth ever became the primary priority of the Fed. I think that there was always & still is, a preoccupation with stabilization of interest rates”. Note: Volcker widened the Federal Funds brackets (policy rate) – didn’t eliminate them.
Volcker’s era was a big lie. Volcker didn’t control total reserves. Legal reserves exploded at a 17% annual rate after the DIDMCA (contrary to Dr. Richard G. Anderson’s reconstruction).
Monetarism involves controlling total reserves, not non-borrowed reserves as Paul Volcker found out. Volcker targeted non-borrowed reserves (@$18.174b 4/1/1980) when total reserves were (@$44.88b).
Volcker’s operating procedure (which hasn’t changed since Paul Meek’s (FRB-NY assistant V.P. of OMOs and Treasury issues), described in his 3rd edition of “Open Market Operations” published in 1974.
New oil fields in Alaska, the American gulf, the N. Sea and in Russia caused
a glut that tamed inflation.
No, the impoundment of monetary savings reduced velocity as predicted.
Professor emeritus Leland James Pritchard (Ph.D., Chicago Economics 1933, M.S. Statistics) never minced his words, and in May 1980 pontificated that:
“The Depository Institutions Monetary Control Act will have a pronounced effect in reducing money velocity”.
Powell: “When times are good in the economy, banks and other lenders tend to have a lot of money to LEND. And in case you didn’t realize, banks are in the business of making money off of loans. So if they can LEND to more people who they believe will pay them back on time, they’ll make more money.
But right now it’s costing banks more to get the funds they need to make loans. Part of that goes back to the Fed’s interest rate hikes. But the other part comes from the recent bank failures. Since many depositors withdrew money from mid-size and regional banks, these banks have less money to LEND.”
Nobody at the FED knows a debit from a credit.
See: “Was the 1982 Velocity Decline Unusual?” – by JOHN A. TATOM
M2 was up since 1980, rising for more than a decade, until the early 1990’s
Ha. M2 is mud pie. Banks don’t lend deposits.
See: “The Riddle of Money Finally Solved” by Philip George
Savings/investment accounts don’t turn over like transaction deposits. The ratio in 1996 was 95:1
Xi wants to keep China stable. A volatile relationship with the US might destabilize China. China plans to invest in the US, build new factories, hire workers, share intellectual properties and allow US investors in: EV cars, batteries and solar panels. China wants to buy from the US and to have a good relationship with us, but to destabilize Trump/Ilan relationship and to destroy Detroit.
Retail sales crushed, but credit card balances reached a new all time high. Consumers are paying 20%/30% per year from the day they charge their credit card. The banks buy o/n at wholesale prices and charge o/n every day at 20%/30%/per year, at x5/x6 times cost Daily, on a $1.2T c/c debt. More people ==> more spending, more debt. Citi and JPM are making new 52 weeks all time high. They don’t care who gets your money as long as u spend it. This time the elastic utility co got the money. The banks charge high interest rates due to the risk, but the delinquency rate is only 3% and they tend to settle before the recycle bin.. More people, more onshore, higher wages ==> the banks reap it all. .
re: “ Citi and JPM are making new 52 weeks all-time high.” Bring back usury ceilings. And drive the banks out of the savings business (which doesn’t reduce the size of the payments’ system).
The regional banks might have a good entry day today. They ducked,
before popping up.
The Fed’s multiple mandates are too much to handle. Debt deflation is necessary and this means price deflation. The US has a demographic problem and really needs a lot of old people to die quickly so social security can be cut.
At some point there will be a fight by the executive branch to take over all indepdent institutions like the Fed. Congress has effectively abdicated its power for now.
Right, total reserve balances have not dropped in 8 months.
We’re ignoring bird flu to hopefully fix this demographic problem.
You are twisted sick for wishing death on old folks.
Sorry, Mish, but I still don’t see your “The Fed cannot fix what what it refuses to see and does not even understand.”
You think it’s in asset prices. But the FOMC minutes you posted above specifically mention the Fed measuring and discussing “housing services inflation” and “asset valuation pressures in equity and corporate debt markets”. The Fed (by its own statement) sees it, understands it, but focuses most on the other parts of consumer inflation (you know, the whole price of eggs everyone- including Trump – is torn up about)
When you have burned up most of the cheap energy …. and what remains is expensive to produce (see shale)…
Eventually that filters through as inflation … it MUST.
The Fed cannot fix this … the Fed can manage it as they have been doing for over two decades by fighting the headwinds with stimulus to ensure consumption and GDP continue to grow.
All fueled by colossal amounts of debt.
But obviously that is not something that can go on forever (and it MUST go on forever… because pulling back means the end of growth)…
That debt must be serviced… and the bill for interest alone is soon to consume most of the tax revenues….
New debt needs to be issued as well … Mr Bond Market is already pushing back on this and wanting higher rates… which of course worsens the debt servicing situation.
THIS SHIT SHOW IS GOING TO COLLAPSE THAT IS ABSOLUTELY CERTAIN
Credit is the obverse of debt. Credit, properly used, is the life blood of the economy.
And all of that speculation on the part of JPowell can be traced back to the day after Trump won the election, proving beyond a shadow of a doubt that there was
ZERO NEED TO CUT IN NOV & DEC.
When is DOGE going to audit the Fed? That’s my $64K question.
Not going to be Munchkin and floozy “gold is good” this time.
Or September, when they started the cutting with a .5% rate cut.
I think a 25 BP cut in Sept based on the labor market signals wasn’t unreasonable. Also, CPI had dropped to 2.4% which again a small cut showed the Fed was ready to cut, if need be, I agree though 50 BP was too much & represents the political aspect Mish noted.
You cut the administered rates while draining reserves (aka, the 1966 Interest Rate Adjustment Act).
When the fed investigates me for something.
With this gobbledygook, xAI wins the more human language feature.
“Several participants cautioned that low- and moderate-income households continued to experience financial strains, which could damp their spending. ”
That statement makes no sense. They are under financial strain because they are spending everything they make to eat and live indoors. There is nothing damped about their spending.
I could spend more, but I have everything I want so why would I?
Low and moderate income families always struggle. Specifically low income. lol That is why it is called low income
Once we get rid of the anchor babies, prices will go down.
Baby formula will certainly drop.
Demographic collapse will make prices go down? Yeah, just like factories will re-shore here in a few months. The timetable expectations on all this, if any of it comes true, is unprecedented. How will re-shoring handle the sudden distortions in our labor pool, or wages? Also, gotta get a lot of troops on our border once sealed, to contain the human surge of desperate (EU has same problem), so there’s another domestic wage inflator. Pedal to the metal all around, oboy! Popcorn up!
The bond market does not appear to believe in DOGE https://x.com/mattyglesias/status/1891977829060903045
Record deficit incoming!
How do you cut spending (debt fueled) when that is the only thing that is fending off recession – and collapse — without collapsing?
Cut ‘waste and fraud’ and distribute the savings by giving everyone $5000 checks. That’s the latest plan anyway.
There will be no checks for serfs.
There will be checks, bait for a historical rug-pull. bet on it.
You drain money and increase velocity.
“A few participants noted concerns about asset valuation pressures in equity and corporate debt markets.”
The Fed being concerned about asset valuation pressures is like the donut maker being concerned about excessive sugar intake. At least the donuts can be taken in moderation.
Somewhere along the way, the financial system morphed into an epic asset-inflating operation driven by the printer, ultra-low rates and ceaseless Fed jawboning.
The Republicans may be traditionally inclined to go along with this while the Democrats appear to accept it with the belief they can create government programs for those left behind.
And so the Democrats’ big idea during the campaign was to provide a $25k subsidy to home
buyerssellers which would make housing even more expensive.Maybe they should spend less time clamoring for the Fed to lower interest rates and more energy into promoting sound financial policies.
They’re busy holding each other as they tremble in fear.
The ‘stable prices’ and ‘full employment’ mandates are ruses. The Fed’s actual “mandate” is to serve the big bank’s interests.
If the dollar is devalued 30% but the big banks profit despite the 30% devaluation, then the Fed has succeeded in its mandate.
Fed in process of changing monetary policy direction once again. However you in private sector attempting to make investments, Business or personal, have a Horizon much longer then Fed.
Fed constantly micromanages everything causing instability everywhere.
The Fed telegraphs its position quite well and far in advance. Look at the inflation rate (currently) or the unemployment rate (when it gets high) and you can guess pretty easily where they are going.
But constantly causing instability? You HAVE to be talking about Trump. Tariffs tomorrow, no maybe next month. You federal employees are laid off, no we need you back. I’ll
To me, unemployment and inflation duel mandate both need deadbands; one take precedent over the other depending on where in the cycle we are. Add an asset inflation factor into the mix. To the screams and howls of the wealthy, but to the better of all. Gotta be a better way of smoothing the cycles than driving up the deficits and debt.
Once you allow prices to gradually increase on the whole, there’s no clear way to measure them. Inflation, once generally entrenched, inevitably affects different groups of people disproportionately, hence massive economic injustice and political unrest.
The only inflation metric that makes logical sense is the one that is easy to measure accurately: “stable prices”, that is, 0% inflation. This is the Fed’s actual legal mandate. Not “2% upper bound” or “2% symmetric”… all sophistry.
As Mish has demonstrated, renters have been screwed over compared to homeowners in the recent inflation. And asset-price inflation has generated historically unprecedented wealth inequality to boot.
eg. Property prices go up for home owner.
Rental prices go up for tenant.
That is massive inequality.
The stable prices mandate clearly need stronger legal support, to prevent Federal Reserve backsliding. There should be both a Federal balanced-budget requirement, and a binding Federal debt ceiling.
(Debt ceiling is already de-facto imposed by bond markets, but the level is unknown. It should be codified, say a fixed multiple of Federal tax revenues averaged over 10 years.)
Solid comments but the printing press and “Fed put” removed the vigilantes from the equation and so the bond markets aren’t imposing much discipline to the system regarding the debt ceiling.
In other words, with the amount of debt already in place and the outlook for huge deficits as far as the eye can see, long-term interest rates would be higher without the heavy hand of the Fed.
Thus the only discipline being applied to the spending is the self-restraint of politicians and the Fed’s willingness to act on a flawed inflation statistic. As we’ve seen, this approach doesn’t work very well.
There were dot plots, and main stream media was hyped and talking how may cuts are expected on this month or that. It was like foreign language to me, it was incomprehensible. And wrong. Politics including manipulation 100%. To ignore obvious asset inflation is wrong and creates an unfair playing field.
Thats why we do it, while the ‘left’ and ‘right’ fight each other.
I just can’t believe in a 3% CPI. Neither should you.
The CPI is subjective and tries to be objective. The FED should understand that.
However, A CPI North of 8% Year over Year since 2021 is believable.
The FED on the other hand is NOT believable.
Not when my property taxes have gone up 33% in two years and 40% for my homeowners insurance.
Hell, the price increase in eggs alone is probably 1% extra on top of CPI.
US consumers rush to buy as Trump tariffs fuel stockpiling, report findshttps://www.reuters.com/world/us/us-consumers-rush-buy-trump-tariffs-fuel-stockpiling-report-finds-2025-02-18/
Take it easy. He walkbacks everything. He doesnt have the guts to go all the way on anything, unless its easy.
You are on point tonight
Exhibit A: total cave on Ukraine: blaming it for being invaded. Easy ride on a greasy pole.
Like the old toilet paper rush?
I will admit to buying extra toilet paper in the past few weeks. It will still be good in a year or two. Same for Kleenex when Costco had them on sale recently.
When I get worried, I buy dry milk and Tang.
Firing civil servants and dismantling government departments is how aspiring strongmen consolidate personal power – lessons from around the globehttps://theconversation.com/firing-civil-servants-and-dismantling-government-departments-is-how-aspiring-strongmen-consolidate-personal-power-lessons-from-around-the-globe-249089
and where the heck are my new Air Force 1 planes, Boeing is so ——–.
Make America Great Again.
Does Boeing still have any US competitors? It certainly would not look good for Trump to fly around in an Airbus.
They say that what Trump wants more than anything, is the Nobel Peace Prize.
If he can bring an end to the Russia-Ukraine war, he will have earned it. I still don’t know what Obama did to deserve his Nobel Peace Prize.
You can always get peace by giving up land.
You watch. Trump etc have already moved on from wanting to borrow $1.5 trillion to now wanting to borrow $4 trillion, likely to be spent on a statute at every intersection for Mr. Wonderful. Hope there is room on Mount Rushmore, cause guess whose face is going up there with Lincoln and Washington. Markets dont matter and inflation doesnt matter — only low interest rates matter . This is his one chance, and if he doesnt go all the way, he runs the risk of being just another El Assad.
Elizabeth Warren should be next to Crazy Horse.
He is a riverboat gambler on a time limit, rolling all our assets on the table. Maybe it works, just as maybe some nights it worked for riverboat gamblers.
“ Fed cannot fix what what it refuses to see and does not even understand”. So true.
And I would add Congress understands it even less than the FED.
Clown show.
The creation of the Federal Reserve in 1913 was, and continues to be this country’s WORST/BIGGEST mistake EVER ! Nothing else comes even close second!
Yes. The U.S. wouldn’t have entered WWI except to protect the investors and lenders leading up to and during the war.
Yes, the era before that of yearslong financial depressions each decade or two, was so good. Loved all the dodgy paper issued by wildcat banks too, juggling suitcases full of various notes from independent banks, and figuring out their creditworthiness. Then there was being financially rescued twice by JP Morgan, oboy. Do you trust an Elon Musk as your savior? (BTW, I admire JP Morgan, but still.)
Why did they cut in September. Why
Three Theories
1. 0
2. 100
#4 – they are trying to push down short-term rates for the sake of lower borrowing costs.
#4. Lots of people kept writing blogposts that the US was in the middle of a recession
I told you why 🙂
Because interest rates in the free bond market had come down for several months.
They were fooled because long-term money flows bottomed in August.