MCViewPoint

If we read between the lines, it is apparent that the Fed is hoping that price inflation will fall to politically acceptable levels without any additional tightening, and without a recession. But “hope” is all the Fed has. The FOMC voting members have no idea what comes next. But, the members apparently still fear politically damaging price inflation isn’t going away as evidenced by most members’ admission that the target rate is unlikely to fall much before the end of 2024. This is notable because the FOMC members tend to strenuously avoid any predictions that rates might tighten further.

These guys are the best we have? I don’t think so. See mises.org, fee.org.

https://mises.org/wire/fed-holds-fed-funds-rate-steady-because-it-doesnt-know-what-else-do

Ryan McMaken

The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday left the target policy interest rate (the federal funds rate) unchanged at 5.5 percent. This “pause” in the target rate suggests the FOMC believes it has raised the target rate high enough to rein in price inflation which has run well above the Fed’s arbitrary two-percent inflation target since mid-2021. 

The press release from the FOMC was largely unchanged from previous recent meetings and contained the usual language about the state of the economy and the Fed’s ability to manage it:

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated. … The U.S. banking system is sound and resilient. … the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans. 

This rosy and orderly picture of the situation relies on cherry-picking which indicators on which to base an assessment of the overall economy, and in his post-meeting press conference, Fed Chair Jerome Powell repeated the usual stock language the committee routinely provides on how present high labor demand proves there is no economic turbulence on the horizon. This reliance on current jobs data deliberately hides a larger and more accurate assessment of the economy. Nonetheless, in his comments at the press conference, Powell stated some undeniable facts: 

Inflation remains well above our longer-run goal of 2 percent—4 percent over the 12 months ending in August—and that, excluding the volatile food and energy categories, core PCE prices rose 3.9 percent. Inflation has moderated somewhat since the middle of last year … Nevertheless, the progress—the process of getting inflation sustainably down to 2 percent has a long way to go. 

This meeting of the FOMC was described as “hawkish” by Wall Street observers and pundits, mainly because the FOMC’s Summary of Economic Projections (SEP) suggested that the target inflation rate will remain at 5.5 percent—or even slightly higher—throughout the rest of the year. As Powell noted:

If the economy evolves as projected the median participant projects that the appropriate level of the federal-funds rate will be 5.6 percent at the end of this year, 5.1 percent at the end of 2024, and 3.9 percent at the end of 2025. Compared with our June Summary of Economic Projections, the median projection is unrevised for the end of this year but is moved up by a half percentage point at the end of the next two years.

See the rest here

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