What The Fed Said vs. What The Fed Meant

by: Toro

We feel we owe a debt of service to our tens and tens of daily readers around the planet and use our experience and cunning insight to offer an interpretation of yesterday's Fed statement which accompanied the surprise 50 basis point cut in the target rate.

What, you say? Greenspan with all his goobledeegook are gone. Helicopter Ben and the Straight Talk Express now ensconced at the helm of the giant printing press of the (fast depreciating) dollar. What need is there for interpretation?

Oh, such naivete!

For, you see, you must read between the lines to understand what the Fed is saying.

Shall we?

What the Fed said

Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally.

And what the Fed meant

It's an asset-based economy, baby. That's why we highlighted the housing correction first and general economic conditions second. It does not matter if asset markets scream higher. We ain't gonna do nothin' about that, even if it does turn out to be a massive economy-distorting bubble. But, hooboy, we're going to make sure that many people don't learn their lesson and give them a nice cushion to fall on so they can be aptly capitalized for the next bubble we helped create with all this excess liquidity rolling into some other asset class. Oh, and we've taken a meaningful position in Chinese stocks.

What they said

Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

What they meant

Stocks were down a whopping 5% from their highs many, many days ago. And, as you know, stocks down a whole 5 points signifies a deep economic contraction. Sure, some cowboys making $20 million a year leveraging the farm on lousy mortgages with other people's money, all the while taking enormous risks to keep their trophy wives, mistresses and massive egos sated seized up the credit markets. It's important reckless risk taking is not punished accordingly. And we're not going to do anything to prevent this from happening in some other asset class a half decade from now. But we'll make sure to bail them out!

Said

Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Meant

Ahahahahahaha! This was the funniest part! You should have seen your face! And you believed us when we said all those other times that inflation was important. Now oil is at a record high, gold is at a record high, foodstuffs are soaring, the dollar is near record lows, inflation in China is at its highest in over a decade, and the break-even rate between treasuries and TIPs eight years out is 4%. And you thought we were serious! We're such kidders at the Fed. Man, we wish we had a camera.

Said

Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Meant

We're Wall Street's bee-atch.

Said

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.

Meant

Transparency, sham-parency. Remember when we had all those Fed governors going around the past few months talking about the risks of inflation? Now, they're falling in line and voting in unison to slash by 50 bps. We know the value of an "upside surprise." And you can't get it when expectations are too high. Gotta get the best bang for our buck. Or whatever value is left in the buck after we're through with it.

By the way, did anyone else notice the irony of Greenspan speaking as clearly as he ever has the past few days? I thought you had.

Picture of Helicopter Ben pilfered from DealBreaker.