FOMC Statement 9/21


From The Fed…. (with my comments, as usual)

Release Date: September 21, 2010

For immediate release

Information received since the Federal Open Market Committee met in August indicates that the pace of recovery in output and employment has slowed in recent months.

The economy has gone nowhere.  We blew our wad, we’re at ZIRP, and now we’re in a liquidity trap.  It feels really nasty too, kinda like Luke in the garbage chute.  Oh, what’s that noise?

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

Households spend until they default.  Then they stop but it’s not by choice.

Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls.

Employers are figuring it out – we’re screwed.

Housing starts are at a depressed level. Bank lending has continued to contract, but at a reduced rate in recent months. The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term.

I anticipate that if I stroke one off it’ll be messy, but then again, maybe I’m impotent.  But then here we are, three years into this, and not only has the FOMC not taken responsibility for what they did that caused the mess, they’re still trying the same crap that didn’t work in 2003 – except to blow another fraud-laced bubble.

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

It’s called Deflation jackass.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.

God forbid we stop drinking.  We might have DTs.

The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.

“Accommodation”?   By doing what?  You’ve already smashed long and short rates through the floor.  Further “accommodation” does nothing other than further inhibiting lending.  Why would a bank take risk by lending when it can simply borrow money for zero and buy Treasuries, then REPO those into more cash for more Treasuries?  That’s a zero-risk trade, right?  (Hint: No it’s not even though under bank accounting rules it counts as one, but the why and how is left as an exercise for the reader.)

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

We’ll never admit we’re wrong – even as we go in the wood-chipper of history – feet first.

Voting against the policy was Thomas M. Hoenig, who judged that the economy continues to recover at a moderate pace. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth. In addition, given economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from its securities holdings was required to support the Committee’s policy objectives.

Now if Mr. Hoenig would simply say “doing this is destroying capital formation”, we’d actually have a brain exhibited on the FOMC.

So far, no sign.

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