Tuesday, August 09, 2011

Stuck on the Zero Bound and Dissent

So, the FOMC spoke and its statement more or less conveys the fact that we are reaching an end game of sorts for Fed policy while voting members are simultaneously beginning to break ranks.

First, the “exceptionally low levels for the federal funds rate at least through mid-2013” language is simply another way of stating that they are stuck at the zero bound.

Some are interpreting this statement as a “bold pledge” that the Fed is prepared to face the weak economic climate and ready to be accommodative for a longer period than many expected.

Nonsense, the Fed is simply stating that the economy is far weaker than they had anticipated and that they are stuck with ZIRP ala BOJ over the last score of years.

This type of sentiment hardly inspires confidence.

Voting against the change in language were three members including Richard W. Fisher, Narayana Kocherlakota, and Charles I. Plosser a further indication that the Fed hardly has a collected sense of the direction of policy and the outlook for the economy.