Once again, the Federal Reserve Open Market Committee (waggishly referred to as the OpenMouth Committee during the Greenspan era for its tendency to try and talk up a good response in the markets) has delivered a widely anticipated "non event" from its most recent meeting.
That is, interest rates were left untouched at a level indistinguishable from zero.
Once again I will try and provide translation services for the overly obtuse and meandering language preferred by the FOMC staff writers.
Release Date: November 4, 2009
Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months.
Translation: "We're hopeful, sort of. It seems that the trillions we've spent have resulted in some statistical results. Maybe. And, no, we're not going to define what we mean by "conditions" and "activity" so that we can weasel out from under those words if it turns out there's another dip in the future. After all, when we say "activity in the housing sector has increased…" we might be referring to the act of stripping copper fixtures from houses in Detroit."
Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.
Translation: "We use the word 'appears' because we don't want to commit here. You might be thinking that spending is a hard, measureable fact and is either expanding or it is not, but we prefer to soften and stretch everything because clear, plain language is against our principles. Next, it is clear to us, as it should be to you, that the notion of expanding household spending is in complete opposition to the reality of job losses and all the other items we mentioned. And we are not going to explain ourselves further especially any pesky questions about household spending can be described as 'expanding' while every state in the union is reporting plummeting sales tax revenues."
Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.
Translation: "When it comes to business, the operative phrase is 'getting worse more slowly.' Given that households and businesses are not really expanding how can we say that the economy is improving? Easy, when we say 'economy' just insert the phrase 'our buddies, the big banks' and our FOMC statements will make a lot more sense to you."
Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
Translation: "We are pleased to have you along for the ride as we conduct the largest experiment in human monetary history. Our theory is that if we manufacture enough money out of thin air and hand it to our buddies, the big banks, that everything will work out swell. If not, at least we'll have had fun trying."
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
Translation: "We are not going to sacrifice one minute of potential earnings for our buddies, the big banks, as they feast upon zero percent money but charge you 29.99%. When inflation rears its ugly head then, and only then, will we spin the wheel on the USS Moneyliner. Don't worry, we'll catch it in time. Or not. Either way we can't lose because we can just print up as much as we need at any time. You? Not so much. Plan accordingly."
In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.
Translation: "We're going to fight an audit with our dying breath."
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 of the federal funds rate for an extended period.
Translation: "We're not going to bother ourselves with any silly notions about how the dollar is being perceived internationally. All we care about is cherry picking a few metrics that support our desire to get as much free money back to our buddies, the big banks, as fast as we can. We've set the money meter to "free" and will keep it there forever if necessary. "
To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt.
Translation: "Because a few folks were getting nervous about the amount of free money we were printing and handing out for MBA and Agency paper we've decided to trim that program back. Where we were going to buy $200 billion of agency debt we are now going to 'only' buy $175 billion. We sincerely hope that people focus on that and do not calculate that the $25 billion reduction only represents a measly 1.7% reduction in the overall MBS/Agency program. Come on, how about it! $25 billion less!! Whoo Hoo!!! Join in any time here…."
The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
Translation: "Anything we said above about conditions or amounts or limits can and will be tossed under a bus at any time should we decide to do that."
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Translation: "As far as we know, none of these folks have recently bought 50,000 shares in Goldman Sachs and been shoveling them money or possibly feeding them insider information like the last guy we ditched."
All joking aside, I am disappointed in this recent Fed decision. Where they say that we've got recovery all over the place, and where there is lots of evidence to support that view, their actions convey something entirely different. Raising rates here would have been a vote of confidence in the recovery.
Instead what we've got is a "free money forever" decision that clearly puts the health of big banks ahead of any concerns over the dollar.
All in all, the Fed statement leaves me with the distinct feeling of being patronized, as though judged incapable of handling the truth. The Fed's words and the actions do not align and we are left wondering where the truth lies. As usual, my preference is to trust actions over words. The actions say that there's still something not right in the system, which is not surprise to anyone who has been paying attention.
Disclosure: No Positions