Plosser: Taper Pace May be Too Slow
My second favorite Bad Cop says…
“We must back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy,” Plosser told a panel in Paris. “Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts.”
Especially since they are not actually withdrawing policy. All tapering does is provide implied profit margin for banks and lenders, considering Fed Funds are held near 0% and the implied spread to longer term lending rates.
“If the economy continues to improve, we could find ourselves still trying to increase accommodation in an environment in which history suggests that policy should perhaps be moving in the opposite direction,” Plosser said.
Plosser is telling us, in not so many words, exactly what I have been claiming; as long as ZIRP is held, we are INCREASING accommodation, not decreasing it. The ‘taper’ hype is just that, hype.
Now I wonder why he does not just outright mention ZIRP? They want to tame the permissive bubble making policy? Do a surprise rate hike on the Fed Funds.
A nation hopped up on greed moves forward with the media obsessed on QE’s declining asset purchases and still nobody’s making a peep about the real inflation, which is where money is lent to financial institutions at 0% at the expense of Grandma, our kids and any other would-be savers.
I’d like to think the Bad Cops are sincere, but until they start to speak directly about ZIRP I have to believe they are just part of a media campaign designed to give the impression that there is some kind of debate about tightening policy. I’ve said it before and I’ll say it again, as long as ZIRP is held they are inflating. Period.
The saying goes that every new Fed Chair is tested (but good) upon taking the reins. In order for that test to come about, it seems that more often than not the previous Fed Chief will have been withdrawing at least some of the particular policy (Greenspan: Easy Fed Funds for Easy Al, Bernanke: Easy Fed Funds/ZIRP & QE bond buying) that had made them look like heroes to so many during their tenure. Here, have a look…
Greenspan was withdrawing the post-dot.com bubble policy that had created a massive credit bubble when poor Ben Bernanke took over. Ben’s Waterloo was the 2008 crash. Enter ZIRP and QE to da moon. Now, a withdrawal of some of that for poor Janet. One wonders what her inflation is going to look like after whatever her baptismal event will be.
Guest Post by Doug Noland
Bernanke chairs his final FOMC meeting.
I hope to at some point offer a more complete review of Ben Bernanke’s tenure at the Federal Reserve. I will be fascinated to see how future historians view the Bernanke doctrine. From my perspective, the Bernanke Era has been an abject failure. He was the most outspoken proponent of post-tech Bubble reflation. The noted academic was keen to use the government printing press – not to mention mortgage Credit – to fatefully drive asset inflation and stimulate a particularly unbalanced U.S. economic boom. I will give him less than zero Credit for then inciting an even greater Bubble, again in the name of system reflation, after the 2008 crisis.
In September the ‘taper’ hype was deafening. I put out some thoughts about why a ‘taper’ of T bond manipulation could be positive for gold. The Fed rolled over and punted on tapering, gold bugs immediately trotted out to take a bow and the precious metals got blown up again.
Hmmm, funny thing how the Fed is staying the course, cutting T bond and MBS buys by another $10b and yet gold is just fine (post announcement). Funny, only if you think for yourself. Not funny if you are a herd member putting stock in the luminaries.
FOMC: “Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month.”
Guest Post by Elliott Wave International
Excerpted from Elliott Wave International’s market analysis
On December 23, the U.S. Federal Reserve celebrated its 100th birthday. When legislation creating its existence was signed on December 23, 1913 (in a sneaky move during a holiday week), Congress granted the Fed a monopoly on creating dollars backed by debt.
Fed’s Bullard say he’s patient on taper
WASHINGTON (MarketWatch) — Low inflation allows the Federal Reserve to be patient before scaling back its bond-buying program, and fears that the program will lead to a 1970s-style inflation outbreak are overblown, the president of the St. Louis Fed Bank said on Monday.
A 70s-style inflation “is not coming,” James Bullard, the regional Fed official, said in an interview on CNBC.
By Doug Noland
Six days and counting. The markets have already discounted a deal.
October 9 – Reuters (David Milliken): “The U.S. Federal Reserve should try to stop a damaging cycle of booms and busts by breaking investors’ expectations that it will mop up after future asset price bubbles, one of the pioneers of inflation-targeting said. Arthur Grimes, who developed inflation-targeting at the Reserve Bank of New Zealand in the late 1980s, said the Fed had inadvertently made bubbles more likely by promising to help the economy after they burst. ‘The largest economy in the world is leading policies that lead to asset booms. It makes it incredibly difficult for other central banks to have a credible policy.’… Grimes said investors were still likely to pile into asset price bubbles because they expected that even if they burst, central bank action to support the economy would soon cause asset prices to return to their previous levels. The U.S. Federal Reserve was particularly at fault after repeatedly supporting markets following brief episodes of financial market turmoil from the 1980s onwards, Grimes said. ‘In my view it was a big mistake by the Federal Reserve… They are stuck between a rock and a hard place, in terms of the Fed officials themselves. You would have to have a big bang to say: ‘We are targeting price stability. We are targeting stable asset prices as well as stable goods prices.’ … Grimes also had words of caution for central banks adopting forward guidance on their future interest rates, saying it needed to be consistent and should not be a mask for changing inflation goals. ‘If you revise based on new information, that is fine. If (the public) think you are going to revise your criteria for where you are going, then you lose your credibility,’ he said.”