Dissecting Yesterday's FOMC Statement... While Holding Down the Barf
So it turns out I wasn't all that far off at all yesterday when I shared my suspected FOMC statement just minutes before the real one. The fakey is here, real one is here, can you tell the difference? Maybe minus the swear words and transparent statements, of course.
Anyway, Bernanke and Co. blew even me away by announcing yesterday that they'd put $600 billion into Treasurys. Obviously the motivation behind this is that the last $300 billion worked so well why not double it?
Remember back in March of 2009 when they first announced the initial round of QE? The goal was decreased borrowing costs. QE 2? Allegedly the same motive though I wonder who they are talking about... cheaper borrowing costs for investors and consumers or, the more obvious answer, cheaper borrowing costs for the United States government? After all, as anyone with awful credit can tell you, interest rates can be a bitch if you are trying to get a loan with severe dents in your credit. But unlike financial deadbeats, the federal government has one hell of a debt pimp there to help in the form of the Federal Reserve. Too bad most of the Fed's best-laid plans always end up backfiring.
As usual, they did not disappoint. I nearly barfed in my coffee when I read the FOMC's statement yesterday and it really isn't easy to get such a reaction out of me.
Anyway, in the interest of clarity, let's look at what they said versus what they meant. As always, my ability to translate Fedspeak may not be much of an impressive trick while hanging at the bar with the homies but boy does it come in handy when they are purposely imploding the economy in the interest of "saving" what little recovery we've gotten a tentative grip on.
Day of reckoning delayed once again.
Release Date: November 3, 2010
For immediate release
Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.
Last month they said essentially the same thing but decided to restrain themselves and simply throw a few billion of "profit" on previous inappropriate asset purchases into new security purchases. Tricky bastards, as if no one would notice. Longer-term inflation expectations are stable simply because the deflationistas have been working harder than pre-election robo callers to get the unwashed masses to fear deflation above all else. And it's working - Social Security recipients won't be getting a raise this year (that's two in a row if you are keeping track at home) despite the fact that prices are rising across all important sectors like food and energy. Hey, who needs to eat? Inflation has technically trended lower because all the new money is not actually making it into America's dirty little hands and as long as they can keep things that way we're safe. Or so it appears.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.
What this means: inflation isn't high enough for the Fed. Yes, it's true, they want to see more of it. Now to you and me this might seem absolutely insane but let's remember this is the Dirty Fed we are talking about here, to them, deflation is the Boogieman in Bernanke's closet as it would mean a collapse of the all-important perpetual debt machine which keeps the lights on at the Board. Bonus points to the FOMC for using "disappointingly slow" in a statement, nice touch.
To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.
Now read that last paragraph very carefully. "To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities." What that means to idiots like you and me is that QE 2 is inflationary and that's exactly the point. See previous point above re: perpetual debt and it should all be clear to you. My guess is that the Committee will not review the pace of its securities purchases and will keep it up as long and as hard as they can until someone finally screams "ENOUGH!"
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
Extended period, big shocker there. 2012 is starting to look optimistic.
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.
Again: keep printing, the wheels are falling off this motherfucker! Print faster, Bernanke, prices are falling!! I'm not sure who came up with this "price stability" garbage but it's genius because not only does it keep them from over-inflating the money supply (allegedly) but works the other way around. So they've got a great excuse to keep up the money-printing, God forbid they stray from this price stability shit so print, print, print bitches!
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.
Yeah, yeah, yeah, the dissenting isn't as cool as it used to be and in fact I am kind of disappointed that there isn't more of it. Seriously, one? That's all you guys have? I'm saddened.
Oh and if Richard Fisher needs a shoulder to cry on after this, JDA humbly offers her tattooed left or right for him to use as needed next time he's in DC. I know I had some crying of my own to do.