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Burned Investors and Economists Blame the FED for Not Doing What They Predicted.

Written by Gary North on September 30, 2013

The poor, dumb saps who believed each other’s predictions that the Federal Reserve would reduce bond purchases in September got their heads handed to them on September 18. The FED did not taper.

I kept saying that it wouldn’t. It was clear by the FED’s use of the targeted unemployment figure of 6.5% that it would not taper. But the media live in terms of hype. They get readers’ attention by predicting a Big Change. Same old, same old doesn’t sell.

Well, the FED pursued same old, same old, as I said it would. Its boilerplate announcement on its policy goal has not changed by one word ever since December 12. Not a comma has changed. I posted this on September 17, the day before the FOMC’s announcement, when it changed nothing.

The New York Times ran an article on the schnooks who believed their own hype about the September taper.

Reuters said 33 of 48 economists it polled faulted the Fed for being “unclear” in its communications, adding, “It is rare for a consensus of economists to criticize a major central bank.” The Wall Street Journal said Mr. Bernanke’s announcement was “the latest in a series of communications missteps.”

The FED was quite clear: the unemployment number was crucial. It had been clear since December 12: 6.5%. The rate was 7.3% when the FED decided to do nothing new . . . exactly as it had been saying.

The Fed’s action clearly surprised many professional investors, who were betting the Fed would start to tighten monetary policy, driving down stock and bond prices. When their bets turned out to be wrong, many of them aired their complaints with the Fed in the media.

These bozos made up the story of the September taper, beginning in June, repeated it daily for three months, and now they blame the FED for not doing what they said it would do.

The criticism plainly exasperated the usually unflappable Fed chairman, who has made greater communication and transparency a hallmark of his tenure. At a news conference on Sept. 18, he said, “I don’t recall stating that we would do any particular thing in this meeting,” and added somewhat tartly that the Fed’s mandate is to do what’s best for the economy and not what’s best for a small group of professional investors. “We can’t let market expectations dictate our policy actions,” he said.

Here is what I wrote on September 17.

Tomorrow, the Federal Open Market Committee will meet. It will decide: leave things alone, and then publish a press release, or tinker at the margin, and then publish a press release.

We read this on Yahoo Finance.

Since the June 19 FOMC meeting, all eyes have been looking down the calendar to September, when market participants determined it was most likely the Federal Reserve would slow down its QE3 easing program. After three tense months, the September FOMC policy meeting finally arrives this Wednesday.

Why have all eyes been looking to September? Why not December?

Why have all eyes been looking at all? The FOMC publishes its press release every six weeks. Ever since December 12 2012, the statement on policy has not varied as much as a comma. It is pure boilerplate.

Yet the financial media has been filled with verbal speculation about the September taper. It is almost universally assumed that the FOMC will announce a change, although minor. The fever pitch has been building. But for what? For an expected reduction from $85 billion a month to $75 billion, i.e., from $1 trillion a year to $900 billion. In short, nothing relevant.

It is one more example of the financial media swallowing camels — the legitimacy of massive counterfeiting — and choking on gnats.

If the FOMC changes anything, it will be saying in no uncertain terms, “ignore our boilerplate press releases. They convey a misleading sense of predictability. Transparency? You must be joking.”

If the FOMC changes nothing, the financial news media will appear as a collective group of dolts, who live on rumors of meaningless changes, which then do not come true.

I don’t think the FOMC will change anything. If it changes anything, it will have to offer an explanation. The main one would have to be this: an improving economy since its most recent meeting on July 31. Where is the evidence of an improving economy?

The crucial fact for the FOMC is this: the pathetic economic recovery — the worst in the post-War era — has been accompanied by a quadrupling of the FED’s monetary base. What happens after the next recession? What will be the FED’s stimulus then?

The mainstream financial media do not ask this question. The question points to the magnitude of the monetary trap which the Federal Reserve is in, and which the world’s economy is in. It would raise this question: “What will happen to prices if the commercial bankers ever start lending again?” But if they refuse to lend, this question is appropriate: “When will the recovery ever gain traction, without the need for $1 trillion of counterfeit money a year?”

Yet some economists will not fess up to the fact that they did not know what they were talking about. The Times quotes one of them.

“It’s obvious people didn’t understand what the Fed’s strategy was,” said Michael Woodford, a professor of economics at Columbia University, and currently a visiting professor at Yale, who has written extensively about Federal Reserve policy. “If the goal was to create less uncertainty and have fewer surprises when a policy action occurs, then it hasn’t succeeded. In my view, it was a reasonable expectation that the Fed would reduce the rate of asset purchases in September. True, no one said that explicitly, but there were plenty of hints. What’s unfortunate is that it now sets them up for what they were trying to avoid. When they do make a policy change, it will cause a bigger negative reaction than it would have otherwise.”

When the FED releases boilerplate every six weeks, anyone with an ounce of sense should expect more boilerplate, unless there has been a change in the metrics invoked by the boilerplate. There wasn’t.

The FED does not know what it’s doing. This is clear.

Professor Wolfers pointed out: “Ben Bernanke said in his press conference that ‘We don’t have much experience with this. We can try to give you guidance. But we’re learning and things are changing.’ He was pretty humble. The Fed is literally learning on the job. But markets have to learn how to listen, too.”

The key fact is not that the FED did not taper. The key fact is that the FED thinks it needs to create a trillion dollars a year to keep the U.S. economy from falling into a recession. This is Keynesianism run amuck. The FED has snared us as a nation. We are now dependent on its $1 trillion a year in counterfeiting. We are like drug addicts. We need our daily dose of fiat money just to avoid withdrawal pains.

Continue Reading on www.nytimes.com

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One thought on “Burned Investors and Economists Blame the FED for Not Doing What They Predicted.

  1. How was anyone surprised by the Feds actions. Don't listen to the word. Watch the dance. The movement, or lack of same, and the motivation tell the tale. The reason Mr. Bernanke says "we don't have much experience wit this" is that people in the past, upon seeing things getting worse, stopped and went in the opposite direction. The hole has gotten so deep and been around so long that they fear turning around. But some place it must end. Short of some miracle it will end badly. See my blog at http://cranky-conservative.blogspot.com