FOMC Statement: We're All Stoned And Heading For The Wall Together


Well this was a snooze….

Information received since the Federal Open Market Committee met in January suggests that the economic recovery is on a firmer footing, and overall conditions in the labor market appear to be improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks. Nonetheless, longer-term inflation expectations have remained stable, and measures of underlying inflation have been subdued.

They have?  I seem to remember a Ticker on this…. oh here it is!

Inflation concerns were still high, with the survey’s one-year inflation expectation rising to 4.6 percent from 3.4 percent in February, the highest since August 2008.

The survey’s five- to 10-year inflation outlook rose to 3.2 percent from 2.9 percent.

Uh, 1-2% expectations are mandate, right?  So what’s 2.5-4x that “stable mandate” level signify in the short term, and what does 150-200% of long-term expectations?

Oh I know, I know – Beernapke doesn’t care what people expect.  He only says he does.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.

Let’s remember, the Webster’s definition of stable (adj):

a : firmly established : fixed, steadfast <stable opinions> b : not changing or fluctuating : unvarying <in stable condition> c : permanent, enduring <stable civilizations>

Hmmm….. so how is an ever-changing price level “stable”?

Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.


The Fed is causing the price ramps in commodities!

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The wall is ahead, the road is foggy, we’re smoking joints the size of Churchill Cigars, we have the pedal mashed to the floor and the speedometer needle is on the pin.  Is that bad?

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.

Uh huh.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Until the engine bond market blows up, the gas oil we can afford to buy runs out or the wall is impacted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen.

We’re all stoned and headed for the wall togetherrrrrrrrrrrr….

The Market-Ticker