Fed's Williams: "We Got It Wrong"

Tyler Durden's picture

In late 2014 and early 2015, we tried to warn anyone who cared to listen time and time and time again that crashing crude prices are unambiguously bad for the economy and the market, contrary to what every Keynesian hack, tenured economist, Larry Kudlow and, naturally, central banker repeated - like a broken - record day after day: that the glorious benefits of the "gas savings tax cut" would unveil themselves any minute now, and unleash a new golden ago economic prosperity and push the US economy into 3%+ growth.

Indeed, it was less than a year ago, on January 30 2015, when St. Louis Fed president Jim Bullard told Bloomberg TV that the oil price drop is unambiguously positive for the US.

It wasn't, and the predicted spending surge never happened. 

However, while that outcome was not surprising at all, what we were shocked by is that on Friday, following a speech to the California Bankers Association in Santa Barbara, during the subsequent Q&A, San Fran Fed president John Williams actually admitted the truth.

The Fed got it wrong when it predicted a drop in oil prices would be a big boon for the economy. It turned out the world had changed; the US has a lot of jobs connected to the oil industry.

And there you have it: these are the people micromanaging not only the S&P500 but the US, and thus, the global economy - by implication they have to be the smartest people not only in the room, but in the world. As it turns out, they are about as clueless as it gets because the single biggest alleged positive driver of the US economy, as defined by the Fed, ended up being the single biggest drag to the economy, as a "doom and gloomish conspiracy blog" repeatedly said, and as the Fed subsequently admitted.

At this point we would have been the first to give Williams, and the Fed, props for admitting what in retrospect amounts to an epic mistake, and perhaps cheer a Fed which has changed its mind as the facts changed... and then we listened a little further into the interview only to find that not only has the Fed not learned anything at all, but is now openly lying to justify its mistake. To wit:

I would argue that we are seeing [the benefits of lower oil]. We are seeing them where we would expect to see them: consumer spending has been growing faster than you would otherwise expect.

Actually John, no, you are not seeing consumer spending growing faster at all; you are seeing consumer spending collapse as a cursory 5 second check at your very own St. Louis Fed chart depository will reveal:

But the absolute cherry on top proving once and for all just how clueless the Fed remains despite its alleged epiphany, was Wiliams "conclusion" that consumers will finally change their behavior because having expected the gas drop to be temporary, now that gas prices have been low for "over a year" when responding to surveys, US consumers now expect oil to remain here, and as a result will splurge. So what Williams is saying is... short every energy company and prepare for mass defaults because oil will not rebound contrary to what the equity market is discounting.

We can't wait for Williams to explain in January 2017 how he was wrong - again - that a tsunami of energy defaults would be "unambiguously good" for the US economy.

Full audio recording below.