If one didn't know better, the clinical assessment of everyone at the Fed, from such alleged former hawks as St. Louis Fed's James Bullard, whose bullshit last week unveiled the Dow-Dependent FedTMand was sufficient to get him the honor of the Friday chart of the day, to such permadoves as San Francisco Fed's John Williams, who also last week infamously halted the market crash and launched the "Moar QE" rally when he said that "More QE may be needed if economy falters" is that they are all schizophrenics, every last one of them, one day demanding an end to QE, the next day saying the liquidity firehose is not big enough.
Of course, one does know better, and what is going on here is that all the Fed's clueless presidents are simply all terrified of what will happen when the Fed finally does lose control, because that would be the end of their centrally-planned ivory tower (for more details see: USSR). As a result they will say whatever is necessary to urge the market ever higher even as the rally runs out of its 6 year long, artificial sugar-high, central bank liquidity.
Case in point, less than a week after Williams hinted at QE4 being just around the corner if the stock market rout doesn't stop, earlier today he released a speech that could easily have come from a biopolar, mentally-ill patient.
Some of the more chemically imbalanced excerpts:
I’ll be honest: These speeches get more and more enjoyable as time goes by because the economic outlook keeps getting better and better. Instead of gloom and doom with a scattering of hopeful notes, things are now pretty upbeat, with only a couple of standard economist’s caveats thrown in.
To wit: After a dip in the first quarter, real GDP bounced back sharply in the second quarter. All the data point toward momentum having been sustained entering the second half of the year, with solid gains in consumer and business spending. Taking all the pieces of information together, I expect real GDP to grow at about a 3% annual rate over the second half of this year and next (Liu 2014).
For those buying ES, the good news abounds. For everyone else, there is hope:
Why hasn’t wage growth picked up more as the economy’s improved? A recent study by Daly and Hobijn (2014) at the San Francisco Fed found that there was something of a floor on wages during the recession and recovery. Employers are generally reluctant to cut wages outright, so as the recovery has unfolded, wages have in many cases stayed stagnant, making up for the losses they didn’t—or couldn’t—incur during the depths of the recession. That is certainly a contributing factor. But, as unemployment continues its move down, we should see those effects wane and wages gradually move up.
Any minute now.
I’ve said it often enough that I should probably have a T-shirt, but let me reiterate: The decision to raise rates will be data-driven, not date-driven. Based on my current forecast for economic growth, employment, and inflation, it would be appropriate to start raising the fed funds rate sometime in the middle of 2015. If the economy or inflation heat up faster than I expect, we should lift rates sooner. If progress on these fronts slows, we should wait longer.
What he really meant is Dow-driven. It's an easy mistake to make.
And while I think the Bureau of Labor Statistics and Bureau of Economic Analysis do fantastic jobs of collecting and distilling inflation data, I also look at—and point critics to—more straightforward assessments like the Billion Prices Project (2014) from the Massachusetts Institute of Technology. This tool scrapes the Internet for prices, giving a daily reading of, well, billions of prices of myriad products. It lacks the complicated adjustments and methods that characterize the government agencies’ models. Nonetheless, it does track pretty closely with the official numbers. What’s more, it gives an independent assessment of consumer prices that is helpful for those who may distrust official federal data. While the BPP’s numbers run a tad higher on average than the official indices, it shows that price inflation remains low and shows no sign of taking off.
That's odd: we thought only tinfoil fringe site cash the BLS' data fudging.
And since no Fed speech would be complete without the speark confirming they have no idea at all how to exit a $4.5 trillion balance sheet, here it is again:
First, we’ll pay interest on reserves held at the Fed. That is, when banks park their money with the Fed, we pay them interest on that money. By increasing the rate we pay to banks for the money they hold with us, we give them the incentive to keep their reserves with us, rather than having funds flow into the market and overheat the economy.
Second, we have a new tool, the reverse repo facility, which folds nonbank financial institutions into that process as well. They’ll have the ability to keep their cash with us in exchange for temporarily holding our assets, with a return that’s below that on excess bank reserves.
These and other tools will help us keep good control as we raise the target range for the federal funds rate. And, like all tools, we’ll use them appropriately. The reverse repos in particular will be carefully managed, and we’ll eventually eliminate their use when they are no longer needed.
It's all very technical though, so just take his word.
Instead of going further into more extensive technical explanations, I’ll note that this is how policy is best managed: having a well-thought-through plan. Once you have the plan, it’s just a matter of executing it. I have every faith that we’ve looked at this from every angle and that we can manage the transition over time.
Indeed, just trust the Fed. After all, have they ever been wrong before.
So the message is that things are getting better. We’re on track to end our asset purchases and we’re preparing for the time the economy can sustain an end to accommodation. We’ll want to see improvements in unemployment, wages, and inflation, and we’ll be driven by the data. But all in all, it’s good news—with just a few of those requisite caveats thrown in.
For those who don't know whether to laugh or cry, how about both? The chart below should help: