Goldman's Take On The FOMC Statement
Even Goldman is not buying the Fed's (and of course Steve Liesman's) religious and nonsensical belief that only the core CPI is relevant: "To us, the main surprise-and it is a small one-is that the FOMC continued to characterize core inflation as trending downward despite an uptick in the December CPI." We were more surprised that the Fed did not acknowledge its new role as the CIA for the QE generation, where with the push of a (printer) button, Bernanke can now incite revolutions.
From Goldman's Jan Hatzius
No Significant Surprises in a Unanimous Decision
BOTTOM LINE: The FOMC's policy statement was almost exactly as
expected-a unanimous decision with no policy changes, some modest
upgrades to the assessments of growth, and a recognition that commodity
prices have been rising. The only difference-and it is slight-is that
the committee retained the sense of deceleration in core inflation
despite an uptick in the December CPI core index.
1. Nobody expected any change in the key policy parameters and there were none. Changes in this paragraph were mainly cosmetic, though the rephrasing of the decision to continue the reinvestment of maturing MBS and agency debt and the additional purchase of $600bn in Treasuries underscores the likelihood that the latter will expire on schedule. Whereas in December: "The Committee will maintain its existing policy of reinvesting principal payments from its security holdings. In addition, the Committee intends to purchase $600bn…" now: "In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its security holdings and intends to purchase $600bn…"
2. Changes to the assessment of economic conditions, while executed a bit differently than we anticipated, addressed each of the concerns we had expressed. In particular, the first sentence recast the inadequacy of growth as "insufficient to bring about a significant improvement in labor market conditions" as opposed to "insufficient to bring down unemployment." The "moderate" qualification to growth in household spending was removed, as expected, and the committee likewise put business spending on equipment and software and on structures on a more equal footing, while continuing to recognize that activity in this sector had slowed.
3. To us, the main surprise-and it is a small one-is that the FOMC continued to characterize core inflation as trending downward despite an uptick in the December CPI. One can argue that the tense of this statement shifted slightly more to the past-"measures of underlying inflation have been trending downward" vs. "have continued to trend downward"-but the distinction seems slight. The committee did preface this comment with a recognition that commodity prices have risen, as we had anticipated.
4. The main unknown going into this meeting was whether the decision would be unanimous or have one or two dissents. Presidents Fisher of Dallas and Plosser of Philadelphia were the main unknowns in this regard. While both dissented in 2008 (Fisher five times and Plosser twice), they both went with the majority in this instance, as seemed likely from a close reading of their recent comments. Both men have probably concluded that, while they had reservations about the $600bn purchase program and would likely have voted against it in November, there is little to be gained at the moment from objecting to it. In doing so, they can exert more leverage later on if the committee appears headed toward an extension of this program later in the spring, though at this time we do not expect that.
- advertisements -