Yesterday, the Federal Open Market Committee issued its boilerplate announcement that it issues every six weeks: no change. The FOMC will continue to counterfeit $85 billion a month for the foreseeable future. I posted its press release here under the title, “Federal Reserve: Same Old, Same Old.”
Today, an unknown newspaper reporter for the Los Angeles Times says that the FOMC will taper off next month. It will slow its purchase of federal debt. Why should we believe this? Here is the proof.
WASHINGTON — Improving economic data is making the prospects more likely that the Federal Reserve will start tapering its massive bond buying next month, a move that suggests the recovery is on solid ground but that would be likely to roil Wall Street.
Economic growth unexpectedly picked up in the second quarter, though it still remained relatively weak. Corporate earnings are largely stronger. Consumer confidence is back to pre-recession levels.
The FOMC said the opposite. It has said the opposite every six weeks all year. This does not persuade media reporters no one has ever heard of from running taper-caper stories.
With the unemployment rate forecast to tick down to 7.5%, enough positive data is piling up to allow Fed officials to decide next month to begin reducing the central bank’s monthly purchases of $85 billion in bonds.
“Everything now strongly signals the Fed will begin its tapering at the September meeting,” said Mark Zandi, chief economist of Moody’s Analytics. Zandi assists ADP with its monthly report.
But the Fed didn’t tip its hand Wednesday because signs of economic difficulties remained, including a still-high unemployment rate of 7.6%.
In short, the FOMC is lying. It is going to cut back in September. It is going to do this, despite the fact that if it does, it will call its credibility into question. “You people lie!” “Why of course we do. Everyone knows that. Pay no attention to our boilerplate.”
Yet we read this: “Wrapping up a two-day meeting, Fed policymakers voted to hold steady on their stimulus efforts and offered no additional guidance on when they would start scaling back.” In short, no change. Well, not quite. There was one change.
The Fed said economic activity had expanded at a “modest pace,” interpreted by some economists as a slight downgrade from the “moderate pace” it cited in its June policy statement. But Fed officials offset that by slightly upgrading their general outlook, saying they expected the pace of growth to “pick up from its recent pace.”
I see. From “moderate” to “modest.” On this, FED experts make their deep interpretations. This is tea-leaf reading. This is staring into the entrails of a sacrificial goat.
The official counterfeiter announced that will continue to counterfeit. This is no news. But it must be made into news. News is what sells, or at least used to, before the Internet.
There was no new language in the FOMC’s press release. There rarely is. It’s boilerplate stored in its computer. This lack of new language is crucial, we are assured by the unknown reporter.
The lack of significant new language probably meant that Fed policymakers are still on track to begin reducing those purchases later this year, as Fed Chairman Ben S. Bernanke said in his quarterly news conference in June.
Consumer spending is falling. This typically is interpreted as a slowdown in the economy, which the FED is trying to avoid. But this time it’s proof that the FED will soon reverse course and tighten money growth.
Those changes helped offset a drop-off in consumer spending, the main driver in the nation’s economy. Spending rose 1.8% in the second quarter, which was lower than the 2.3% increase in the first quarter, the Commerce Department said.
The drop in government spending from the automatic cuts under the so-called sequester continued to be a drag on growth, though less so than in the first quarter when federal agencies were preparing for them.
Ignore this, he says. Ignore everything the FOMC says. “Believe me, you should believe me.” But why? Because no one has ever heard of him, that’s why. Also, because Bernard Baumohl says so. No one has heard of him, either.
The latest economic data might be enough for the Fed to begin a slow reduction in its bond purchases, said Bernard Baumohl, chief global economist at the Economic Outlook Group. But he said the lack of any hint of that pullback in the Fed statement means it might not come until later in the fall.
This is what passes for economic analysis today.
My view: if the nation’s official counterfeiter says it is going to inflate, assume that it will inflate.