Someday the US will get abolish the Fed and use private, market-based money. Until that happy day, SLL will post critiques of the Fed and its minions. Here’s a good one from Wolf Richter at wolfstreet.com:
Who says the Fed can’t have fun at our expense?
At the Symposium in Jackson Hole, so feverishly anticipated by the entire world, Fed Chair Janet Yellen gave an even more feverishly anticipated speech on Friday, in which she said the same stuff she’d been saying all along, such as these nuggets:
“And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course.”
“Our ability to predict how the federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.”
To document this, she supplied the fan chart below, adding this explanation:
“The line in the center is the median path for the federal funds rate based on the FOMC’s Summary of Economic Projections in June.”
“The shaded region, which is based on the historical accuracy of private and government forecasters, shows a 70% probability that the federal funds rate will be between 0 and 3.25% at the end of next year and between 0 and 4.5% at the end of 2018.”
At the Fed, nothing ever appears out of nowhere, except money. So Bloomberg supplied some background on how the chart came about:
The Fed has been struggling to find a way to point out that its dot plot – or its quarterly forecast of its policy rate for the next few years – is just a guess and it’s subject to change due to economic shocks or surprising twists in the data.
A subcommittee on communications submitted similar fan charts to the Federal Open Market Committee in January for their consideration. As usual, committee participants expressed “a range of views,” with some saying the charts might be helpful “in explaining that future monetary policy is necessarily uncertain.”
Fed officials sent the subcommittee back to their cubicles to study the issue some more. They had some criticisms of the charts – one big one was that past forecast errors may not equal future ones.
Here are the 11 bone-chilling things I gleaned from the chart:
1. They have no clue about what might happen next. Their forecasts and “forward guidance” are either figments of their imagination or just efforts to manipulate the markets.
2. They have no clue how to get out of what initially was an emergency treatment of a Fed-sponsored financial system in full and self-https://straightlinelogic.com/wp-admin/edit-tags.php?taxonomy=post_taginflicted collapse, but is now the “new normal” treatment for an economy buckling under its Fed-encouraged debt.
3. Even the confidence level in their cluelessness is only 70%. What about the other 30%? We’re better off not knowing.
4. NIRP be screwed. Negative interest rates are off the table. In footnote 2 and on the chart itself, Yellen points out the “effective lower bound of 12.5 basis points.” So the bottom in rates, at a 70% confidence level, is 0.125%.
5. NIRP is beyond even the new-normal central bank deviousness. Negative interest rates are so destructive even to Fed-coddled entities, such as the banks, that the Fed doesn’t want to try them.
To continue reading: The 11 Bone-Chilling Things I Gleaned from Yellen’s Chart
