Hawkish Pause My Eye!
Our Keynesian central bankers are not good for much—except for an occasional hearty belly-laugh at their verbal contortions, most especially at meeting time. After yesterday’s pause they still claim to be “hawkish” on inflation, but here is what they have actually accomplished in the last 183 months. And there is nothing hawkish about it—not back then, not now.
The Fed funds rate is still under water in real terms at negative 50 basis points, and has been in negative territory 96% of the months since February 2008. And that’s a recipe for monetary metastasis if there ever was one.
Yet Powell now says the June “pause” is actually just a skip—except that, well, he didn’t mean to say it!
We’re trying to get this right, and if you think of [the speed and the level of rate increases] as separate variables, then I think that the ‘skip’—I shouldn’t call it a ‘skip’—the decision makes sense,” Powell said.
And besides that, you can take it from the horse’s mouth that the Eccles Building is still primed for battle against inflation. Powell claimed that’s signaled by the new dot plot’s terminal rate rising from 5.1% to 5.6%, meaning that the Fed has not surrendered to Wall Street speculators—at least just yet. It’s only taking a time-out to stick its head out of its monetary foxhole and look around.
Powell’s verbal gymnastics sound half-baked at a minimum, but not according to the Fed’s Wall Street rates whisperer, WSJ reporter Nick Timiraos. The Fed chairman was clear as a bell, says his interpolator:
….. Powell’s Freudian “skip” suggests a July rate rise is the base case, even though (as always) the economy can intervene. “There is an every-other-meeting strategy, and the July (increase) decision has all but been made.“
Nor do you need to take Timiraos’ word for it. Most of the Wall Street Fed watchers have become latter day monetary Kremlinologists—they know what all the code language means.
Powell also described the July meeting as “live,” lingo officials have often used to suggest a rate increase is more likely than not.
Gregory Daco, chief economist at consulting firm EY, said, “His tongue slip mention of a ‘skip’ indicates a rate hike is nearly guaranteed in July—and it likely explains how Powell managed to ensure a unanimous vote in favor of a hold despite diverging views among policy makers.”
So there you have it. The Fed is not run by monetary wizards parsing the arcane science of central banking. They are just politicians splitting hairs to arrive at a consensus. And yet they claim that interest rates are too important to be left to the free market!
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