Now, according to Fed Vice Chair Fischer, the Fed is waiting for the mysterious appearance of animal spirits and other vapors in the economy. From Wolf Richter at wolfstreet.com:
In his keynote speech on the usual suspects of central-bank topics at the Institute of International Finance’s big shindig in Washington DC today, Fed Vice Chair Stanley Fischer nevertheless managed to develop a new theory for a fourth Fed mandate.
This new mandate would come on top of the third mandate: inflating asset bubbles at all costs (unlimited asset price inflation). The other two mandates are “full employment” (whatever that means) and “price stability,” which is ironically defined as consumer price inflation, the way the Fed counts it, of at the moment 2%, and a lot more in most people’s real-life experience.
Fischer has been grumbling about the slow growth of the US economy for a while – “Everybody is trying to find out what is going on,” he said today, and then went on to explain what’s going on. Turns out, what’s restraining economic growth and investment is a lack of “confidence” and “animal spirits.”
“Confidence has to be turned on for people to want to invest and we’re waiting to see that happen,” he said, according to MarketWatch. “It will happen at some point. But precisely when” is unknown he said.
“Animal spirits aren’t there – people aren’t excited about growth prospects.”
So no interest rate increases until these “animal spirits” and “confidence” show up?
But, but, but… the Fed’s monetary policies for the past eight years have created the biggest credit bubble in US history, including the biggest junk bond bubble ever, a stock market bubble, housing bubbles in numerous cities around the country that exceed by far the peaks of the prior housing bubbles that imploded so spectacularly, the most gigantic commercial real estate bubble, now according to the Green Street Commercial Property Price Index, 26.5% above its totally crazy bubble peak of August 2007….
Some of Fischer’s own colleagues have been loudly fretting about asset bubbles – including Boston Fed governor Eric Rosengren, a voting dove of the Federal Open Markets Committee, where monetary policy is decided, who’d zeroed in on the commercial real estate price bubble:
As the chart shows, bubbles get really crazy and then they implode. Bubbles are not great, long term, for the economy overall. They’re only great for their beneficiaries, if they can get out in time. Innocent bystanders suffer when bubbles inflate (for example, life gets more expensive but pay stagnates), and they get unceremoniously plowed under when bubbles blow up while the big beneficiaries that couldn’t get out in time, get bailed out.
The charts for these asset bubbles look just out of this world. Or they would have looked out of this world before the era of QE, ZIRP, and NIRP. Now they basically look normal. Because they just about all look like that.
Despite Fischer’s proclamation that “animal spirits” and “confidence” were lacking, it was precisely “animal spirits” and “confidence” that drove these investors, speculators, corporations, and Wall Street to take all these huge risks all the time, and plow other people’s money into these assets.
Animal spirits, pure and simple: Blind risk-taking associated with herd mentality. Everyone is chasing after the same thing, motivated by Fed policies and funded by nearly free money, building up maximum leverage, and driving prices higher and higher in the process. Exactly what the Fed had wanted from get-go. Bernanke called this policy goal the “wealth effect” in a Washington Post editorial back in 2010.
To continue reading: Fed Vice Chair Fischer Admits Fed is Waiting for Godot