The Fed released Minutes of the December 13-14, 2016 FOMC Meeting today.
Let’s dive into the minutes to dissect the amount of Fed uncertainty.
- Market-based measures of uncertainty regarding monetary policy at horizons beyond one year moved up, suggesting that some of the firming in OIS rates could reflect a rise in term premiums.
- The declines in EME currencies and risky asset prices were reportedly driven by higher U.S. yields as well as by uncertainty about possible changes in U.S. trade policies.
- The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as similar to the average of the past 20 years. The risks to the forecast for real GDP were seen as tilted to the downside, reflecting the staff’s assessment that monetary policy appeared to be better positioned to offset large positive shocks than substantial adverse ones. In addition, the staff continued to see the risks to the forecast from developments abroad as skewed to the downside.
- In their discussion of their economic forecasts, participants emphasized their considerable uncertainty about the timing, size, and composition of any future fiscal and other economic policy initiatives as well as about how those polices might affect aggregate demand and supply.
- Many participants underscored the need to continue to weigh other risks and uncertainties attending the economic outlook. In that regard, several noted upside risks to U.S. economic activity from the potential for better-than-expected economic growth abroad or an acceleration of domestic business investment. Among the downside risks cited were the possibility of additional appreciation of the foreign exchange value of the dollar, financial vulnerabilities in some foreign economies, and the proximity of the federal funds rate to the effective lower bound.
- Several participants also commented on the uncertainty about the outlook for productivity growth or about the potential effects of tight labor markets on labor supply and inflation.
- Some contacts thought that their businesses could benefit from possible changes in federal spending, tax, and regulatory policies, while others were uncertain about the outlook for significant government policy changes or were concerned that their businesses might be adversely affected by some of the proposals under discussion.
- A few added that continued gradual strengthening in labor markets would help return inflation to the Committee’s 2 percent objective. But some other participants were uncertain that a period of tight labor utilization would yield lasting labor market benefits or were concerned that it risked a buildup of inflationary pressures.
- A few participants noted the uncertainty surrounding real‑time estimates of the longer-run normal rate of unemployment, and it was pointed out that geographic variation in labor market conditions contributed to that uncertainty.
- Many participants expressed the need for caution in evaluating the implications of recent financial market developments for the economic outlook, in light of the uncertainty about how federal spending, tax, and regulatory policies might unfold and how global economic and financial conditions will evolve.
- While viewing a gradual approach to policy firming as likely to be appropriate, participants emphasized the need to adjust the policy path as economic conditions evolved. They pointed to a number of risks that, if realized, might call for a different path of policy than they currently expected. Moreover, uncertainty regarding fiscal and other economic policies had increased.
- Moreover, many participants emphasized that the greater uncertainty about these policies made it more challenging to communicate to the public about the likely path of the federal funds rate.
- Participants noted that, in the circumstances of heightened uncertainty, it was especially important that the Committee continue to underscore in its communications that monetary policy would continue to be set to promote attainment of the Committee’s statutory objectives of maximum employment and price stability.
- Members agreed that there was heightened uncertainty about possible changes in fiscal and other economic policies as well as their effects.
Uncertainty Scorecard
- 15 instances of derivations of “uncertainty”
- 2 instances of “heightened uncertainty“
- 2 instances of “uncertain“
- 1 instance of a sentence with with the word “uncertainty” used twice
- 1 instance of “greater uncertainty“
- 1 instance of “considerable uncertainty“
- 1 instance of “uncertainties” plural
FOMC Minutes Bingo
In FOMC Bingo you have to get every box filled. There were better cards. Wizard was a killer. Otherwise, I had a chance.
Fed Uncertainty Principle
Let’s review the Fed Uncertainty Principle and its corollaries as I wrote them on April 3, 2008, before the crash.
Fed Uncertainty Principle:
The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.
Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two:
The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three:
Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.
Economists Predict Uncertainty to Clear Up
If and when the economists are ever “certain” about the economy, I am certain they will be wrong.
Back in August, I noted Economists Expect “Mount Everest” of Uncertainty to Clear Up by December
What happened?
Attempts by the Fed and economists to measure uncertainty are certainly ridiculous.
OT: If you have not yet checked out Mish Moments, my new photography website, please do so.
Mike “Mish” Shedlock
