Kremlinologists can as always find a detailed comparison of the December and January FOMC statements at the WSJ's statement tracker. The main difference to the December statement was the acknowledgment that "growth in economic activity paused," but this was ascribed to inclement weather and so evidently does not constitute a good reason to quicken the pace of monetary pumping further (there is of course no good reason for monetary pumping whatsoever, we're just looking at it from the point of view of "Printers R Us").
Not yet, that is -- after all, inclement weather could be here to stay.
Funny enough, business fixed investment was concurrently upgraded from has slowed to has advanced (it has, actually). Instead of being concerned that without sufficient monetary policy accommodation everything will go down the drain again this very second, the committee is now back to expecting that its pumping activities will eventually have the desired effects. These activities will continue at the pace already announced in December, including the replacement buing of maturing assets.
As we have expected -- see our recent missive on this topic ("Humility and Hubris") -- Esther George of Kansas is indeed stepping into Thomas Hoenig's footsteps and is now (so far) the sole dissenter against the easy monetary policy among FOMC participants that have a vote in 2013.
The "Exit" Fantasy
There has been a lot of talk ever since the minutes of December FOMC meeting were released regarding the putative exit from the debt monetization program. This is lough-out-loud funny given that the December meeting was the one in which the Fed decided to more than double its previous program of asset purchases. So, a few "board members expressed concerns" -- well, they've been expressing concerns since 2009 when all of this began. It's always the same people expressing them, and as we have seen, their influence on the actual decisions is essentially zero (even if the mad hatter allegedly values their input).
Moreover, they are useful props for the inflation expectations management strategy of the Fed. After pumping up the true money supply by nearly 90% in a little over four years, expectations management is probably regarded as pretty important (we are guessing here -- we are not entirely sure what their thinking on this topic really is since they rarely, or never, mention supply growth, and if they do address it upon direct questioning from the odd journalist, they as a rule refer to measures of the money supply that tend to obscure more than they reveal).
What counts -- at least until 2014 -- is Ben Bernanke's view, and thereafter it will probably be Janet Yellen's view. How much more clear can Bernanke actually be? Ever since his infamous "it won't happen here" speech on deflation delivered in 2002, he has never once wavered with regard to his views on what the Fed should do once it reaches the dreaded zero-bound in its administered interest rate. His critiques of the 1930s incarnation of the Fed and the BoJ meanwhile are well known and have been discussed far and wide. The essence of these is that both central banks have in his view stopped stimulating much too early. Obviously he is set upon not making the same mistake.
The only thing worth talking about at this juncture are therefore not exit fantasies (which somehow have been a recurrent theme since 2009, with the same outcome every time), but what might get them to print even more. Our guess with regard to this is that the stock market will eventually crumble and economic data will increasingly disappoint, not least because the economy has been weakened structurally due to all their money printing to date.
We know already what the standard reaction of the economists populating the Fed's board (which is a fairly good representation of mainstream economists' views and the schools of thought they belong to -- i.e., Keynesians, various Keynesian sub-sects and monetarists) to such a development will be: They won't reassess their policy based on the idea that it may need to be altered on a fundamental basis. They will simply judge that they haven't been doing enough of what that have been doing so far and will proceed to do more of it.
Q4 GDP Unexpectedly Contracts a Tiny Bit
Yesterday's GDP report was apparently a surprise to most economic forecasters. This is mainly because a bad number almost always catches them by surprise. However, we want to point out once again here that GDP is probably one of the most misleading and useless of the great many useless macro-economic aggregates the statistics minions of the State produce. This is just as true when it delivers upside surprises as in Q3, as it is when it delivers the rare downside surprise (rare, as due to the GDP deflator, real GDP can be tweaked into whatever they want it to be).
According to the reports we have seen (we are not inclined to delve into all the details, as that is a waste of time anyway), the culprit was a big decline in government spending. Well, hurrah! What can possibly be bad about that? A decrease in the burden of government spending may be bad for this useless number, but it is certainly a rare piece of good news for the economy!
Another item that declined were inventories, and that isn't really bad news either, as such declines usually tend to be reversed fairly quickly again.
According to Forbes:
The U.S. economy greatly slowed in the fourth quarter, driven lower by reduced government spending and lower inventories.
U.S. gross domestic product fell for the first time in three and a half years in the fourth quarter, declining by an annualized 0.1%, new Commerce Department figures show. Economists had expected GDP to increase 1%.
A dramatic 15% drop in government spending dragged on economic activity. Defense outlays were cut the most, falling by 22.2%, the largest decreased in defense since the Vietnam War's end in 1972. Private business inventories, meanwhile, also decreased. The reduced spending and inventories wiped away 1.6 percentage points from GDP growth, and reversed the strong 3.1% GDP growth recorded in the third quarter. (emphasis added)
Hurrah again! Not only did government spending decrease markedly, but what decreased specifically was spending on the war racket! This is definitely extra good news, although we doubt that it will last (they will likely make up for it soon). Not only that, the report actually looked quite strong in several other respects:
Despite the stumble at year's end, the U.S. still grew more in 2012 than it did a year earlier. Economic growth increased to 2.2% from 1.8%.
The final months of 2012 were marked bySuperstorm Sandy's destruction on the East Coastand uncertainty about how politicians would handle the massive budget cuts and spending increases in the fiscal cliff. Consumers managed to hold up. Personal consumption expenditures increased 2.2%, above the 1.6% rise a quarter earlier.
Several other bright spots are available in the gloomy fourth-quarter report. Residential fixed investment, home improvement spending, expanded 15.3%. Business investment increased 8.4%. (emphasis added)
This bout of strength in the private sector should also be hailed as good news. Who cares about the negative aggregate number if it is due to a decline in government spending? The government must take every cent it spends from the private sector in some shape or form anyway. It doesn't have a secret stash of resources hidden under commissar Obama's mattress. Unless one actually believes central economic planners, bureaucrats and pork barrel spenders are somehow superior stewards of these funds than the private sector, one should be happy to see a decrease in government's share of economic activity. However, we fear the situation will prove to be only transitory. The Fed's ultra-loose monetary policies have distorted prices and have demonstrably already egged on new malinvestment.
Anyway, we will be on the lookout for things that may motivate the Fed to add to its money printing programs, but this GDP report surely wasn't one of them (we are assuming that that the people at the Fed are able to parse the data and are not necessarily likely to come to the wrong conclusions about them).