Please consider the Minutes of the Federal Open Market Committee for the meeting held on April 30 and continued on May 1.
Financial Stability
Among those participants who commented on financial stability, most highlighted recent developments related to leveraged loans and corporate bonds as well as the current high level of nonfinancial corporate indebtedness. A few participants suggested that heightened leverage and associated debt burdens could render the business sector more sensitive to economic downturns than would otherwise be the case. A couple of participants suggested that increases in bank capital in current circumstances with solid economic growth and strong profits could help support financial and macroeconomic stability over the longer run. A couple of participants observed that asset valuations in some markets appeared high, relative to fundamentals. A few participants commented on the positive role that the Board’s semi-annual Financial Stability Report could play in facilitating public discussion of risks that could be present in some segments of the financial system.
Monetary Policy
In their discussion of monetary policy, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, and that information received over the intermeeting period showed that economic activity grew at a solid rate. However, both overall inflation and inflation for items other than food and energy had declined and were running below the Committee’s 2 percent objective. A number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations. That said, these and other sources of uncertainty remained. In light of global economic and financial developments as well as muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Participants noted that even if global economic and financial conditions continued to improve, a patient approach would likely remain warranted, especially in an environment of continued moderate economic growth and muted inflation pressures.
Continued Low Inflation
Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective. Several participants also judged that patience in adjusting policy was consistent with the Committee’s balanced approach to achieving its objectives in current circumstances in which resource utilization appeared to be high while inflation continued to run below the Committee’s symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee’s objective, or that the Committee would need to be attentive to the possibility that inflation pressures could build quickly in an environment of tight resource utilization. In contrast, a few other participants observed that subdued inflation coupled with real wage gains roughly in line with productivity growth might indicate that resource utilization was not as high as the recent low readings of the unemployment rate by themselves would suggest. Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee’s symmetric 2 percent objective—a development that could make it more difficult to achieve the 2 percent inflation objective on a sustainable basis over the longer run. Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data.
Summation
The Fed is as clueless as ever but they will be patient about it.
If the Fed understood what inflation is, we would not be in another massive bubble.
Note the Fed Lie of the Day: “Low Inflation is One of the Major Challenges of Our Time“
Hello Jerome Powell
I addressed the silliness of inflation expectations in Hello Jerome Powell, We Have Questions.
If you have not done so, or if you need a refresher course, please give that a look.
Mike “Mish” Shedlock
The numbers are deliberately deceptive and underreport true inflation. The reasons are obvious. What is not obvious is why has there not been anyone taking these people to task for their lies. The emperor has no clothes.
Fed Measures “price” inflation. If “content” inflation was measured, then different story. Packages content getting smaller, liquids being diluted, services getting cut short and more prone to error, etc. The Fed measures the numerator, not the denominator. Is Technology making us all more productive ? Ask yourself how many times you’ve done your own technical troubleshooting. Sounds like spending more time on a fixed good. Time is money. Not in the data. Even the Federal Reserve sounds more and more like a elementary school child explaining inflation.
We’re still told that passive mutual funds will always be the best investment, stock buybacks are the best way companies can build value and everyone wants to work until they’re 80.
Let interest rates float to their natural level and the whole thing will come crashing down. But in return we’ll get rid of p̶e̶t̶s̶.̶c̶o̶m̶ Lyft, get back to real investing, and some of the old timers will take up fly fishing instead of hanging on to their antiquated ideas.
Note the Fed Lie of the Day: “Low Inflation is One of the Major Challenges of Our Time”
Not altogether a lie seeing that the resulting policies implemented as a result of the “bad low inflation” hurts everyone who doesn’t profit from the scam.
Mish, I always here alot from you about what the Fed is doing wrong.
If you were Fed Chairman, what would be most important to you and what would you be doing right now?
The Fed has gone so far down the easy money path that there are only two options. Either go nuclear and normalize rates, destroying wide swaths of our economy and creating a depression (taking our medicine becomes very painful after avoiding it for so long and desperately trying to thwart the business cycle), which is politically unpalatable.
The other option is to continue on the current path until we run this debt ponzi into the ground. We all know they’ll pick door #2 and they made this choice more than 20 years ago following Greenspan’s last coherent moment about “irrational exuberance”.
That basically sums it up succinctly
The bad thing is there is no real coverage from msm or the political pukes that want everyone to believe everything is coming up roses. I guess until max debt is achieved it will continue to be so.
“Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee’s symmetric 2 percent objective…”
Maybe the problem is asymmetric.
The FED’s money went into the pockets of the one percent or so. Corporations bought back stock instead of hiring new people, who then had money to spend into the economy, driving up inflation. Despite the official unemployment rate being below 4%, some 100 million working age people are still not employed, so they say.
“The Fed will be patient.”
The FED said it was on autopilot. A 20% drop in the stock market changed that. The FED saying it will be patient has little meaning.
“Many participants viewed the recent dip in PCE inflation as likely to be transitory…”
Dips are transitory. The 57% decline in the S&P 500 was transitory. The 90% decline of the DOW into 1932 was transitory.
100% pure bullsh*t.
What a cabal of willfully ignorant fools.
“There was a risk that inflation expectations could become anchored at levels below those consistent with the committee’s symmetric 2 percent objective.”
Pretty much a given now that they have thrown $trillions in trickle-down stimulus into a corrupt financial system…all for what? Just so they could save their banker friends and and every zombie corporation on Wall Street.
One thing which is certainly not “transitory” is the Fed’s fealty to Wall Street and the crooks who run it.
There is nothing in this economy to be optimistic about,not even close and the fed knows it.The federal gov’t is inching closer to missing a payment on the 650 billion dollar interest payment this year……….then what…….without massive increase in money printing the treasury will not be able to front run the 3 trillion in red ink in it’s piling !!
They could make the interest payment, but then they’d just have to print the money for something else.
Miss a payment?
Just where do you think $4 trillion of QE came from?
Productivity improvements, the basis of living standard progress, are DEFLATIONARY, some are profoundly so. Running a 2% INFLATIONARY monetary policy in the middle of an ongoing technological revolution is insanity.
In 1992, our flag ship 30 Gigabyte disk product where I worked sold for $300,000. Today, 30 Gigs goes for less than ninety cents. That’s 60% annual price per Gigabyte erosion over a period of 27 years.
Using the Fed’s 2% inflation model instead would have us paying $512,000 for the 30 Gigs today. Insanity…indeed.
That’s how you rob those, whose work enabled disk drives to get cheaper, of the value of their work; for the benefits of useless leeches whose sole “contribution” is closeness to the Fed.
Disk drives are an extreme example, but the same dynamic is in play across all industries, and all times. Ingenuity allows the same thing to be made more efficiently, hence cheaper. Year in, year out. While competition ensures this drop in cost benefits all, in the form of lower prices.
The purpose, the entire purpose, of fiat money; is simply to steal this gain. From all those who produce it. So that it can be redistributed to well connected deadweights who serve no useful purpose at all.
I agree. But I suspect that lack of inflation presents an existential threat to the Fed. If there is no inflation, or even better if there is deflation, they will have lost their major tool for managing the economy. Without a tool to manage the economy their reason for existence vanishes. I suspect no one would miss them except they themselves and the large banks.
“Running a 2% INFLATIONARY monetary policy in the middle of an ongoing technological revolution is insanity.”
Not unless you are the cause of the inflation.
The purpose of the Fed is to bail out banks after screwy lending phases (banks like to go through chastity and promiscuity lending phases). They pay our government for this privilege by giving Congress all the money they want and the resulting expansion of the administrative state (i.e., people who get paid to add essentially no value to the economy) causes inflation. The Fed then likes to state that this inflation is “good” to provide cover for the theft they cause.
Just about every vehicle sold today will blow the doors off a 1970’s or 80’s era muscle car. With standard AC, power everything and get far better fuel economy despite weighing 40% more.
I can feel it at the grocery store. Literally cant get out for less than $100 per trip. The reason most people spend to their income level is because of inflation.
We can’t get out of Costco for less than $100 unless we avoid the wine isle!
Actually wine (except for “prestige” labels) is no more expensive now than it was seven or eight years ago. I can still buy a nice bottle of Columbia Crest Grand Estates Merlot for the same $7.99 that I paid back in 2011. Now, if you are talking Grand Cru Burgundy or First (and even some Second) Growth Bordeaux, that is another story. The Chinese and other Nouveau riche jackasses with money to burn have driven their prices to the moon and made them completely unaffordable for you and me.
Most states have gone up on taxes for wine and beer to support their bad spending habits.
Which means that the mass-market wine business is not very profitable. No pricing power whatsoever, while being completely at the mercy of tax-hungry local government.
Yes, but groceries are excluded from the inflation calculation so you’ll be fine. Stop worrying.
I am curious as to where grocery prices would land if SNAP was scaled back to pre Great Recession (GR) levels. You would think the subsidy would have subsided after the GR ended and we (supposedly) have the lowest unemployment level in years, but you would be wrong! Another example of theft of society’s productivity gains.