Three Weeks Later: The Fed Minutes – Robert Aro (07/07/2020)

Somewhere there exists a list of ostentatious, unapologetic behavior exhibited by the Federal Reserve. On that list there must be a spot for the three-week delay on publishing the board minutes, as seen by the June 9–10 Federal Open Market Committee (FOMC) meeting minutes. We can only wonder if the minutes have been significantly edited or instances of great dissent among central bankers omitted entirely. Among the many issues with the Fed is a lack of accountability. We only know whatever information they provide.

Chair Powell began with a mention of the current civil unrest facing the country. In an attempt to address inequality, or at least appear to, he added:

Everyone deserves the opportunity to participate fully in our society and in our economy.

The hypocrisy, of course, is in how this can be achieved when the Fed takes action such as buying bonds from billion- (to trillion-) dollar corporations or focuses on managing price increases in consumer goods while neglecting the rise in asset prices. The Fed’s own actions harm the most vulnerable members of society first while claiming to serve the entire nation!

They quickly move on to financial modeling, noting:

The simulations suggested that the Committee would have to maintain highly accommodative financial conditions for many years to quicken meaningfully the recovery from the current severe downturn.

We could argue the Fed has been “highly accommodative” to financial markets since the Great Recession, keeping rates at historic lows, and only shrinking the balance sheet briefly from 2008 to mid-2019 until finally capitulating after the stock market neared the verge of collapse. Perhaps, we shouldn’t fear low rates or an end to the stimulus any time soon, if ever.

The yield curve control or target (YCT) was briefly discussed. This seems to remain in the discussion phase, as the Fed noted some pros and cons. While deciphering Fedspeak is not an easy task, it seems they are not completely behind the idea just yet, especially as:

the staff also highlighted the potential for YCT policies to require the central bank to purchase very sizable amounts of government debt under certain circumstances.

Wouldn’t it be grand if making sizable government debts in order to control interest rates was something the Fed wanted to shy away from?

They continued with favorable views on large-scale asset purchases, since they were “effective” during the Great Recession and are now “key parts of the monetary policy toolkit”:

as a result, they have important roles to play in supporting the attainment of the Committee’s maximum-employment and price-stability goals.

It would be interesting to see them try to justify how central bank asset purchases lead to “maximum employment” and “price stability.” Price “inflation” also received an honorable mention:

Prices fell in March and April in many categories that were affected the most by social-distancing measures, such as the prices for air travel and hotel accommodations.

Surely economists calculated the inflation numbers correctly and accounted for the decrease in prices while considering the change in relative importance of each item used to arrive at their inflation number. Can anyone imagine what would happen if the actual “inflation rate” was much higher, such as 5 percent? What would that mean for the stock market, bond market, risk ratings, Treasury prices, pension plans, long-dated contracts, and a whole host of other calculations that factor in inflation?

There was much deliberation and many economic projections made, each piece of data used to help plan our future, ensuring the Fed gets closer to reaching its mandate of maximum employment and stable prices, ostensibly to the benefit of society. Ultimately, for all the pomp and circumstance surrounding the Fed, there really isn’t much to be revealed. Congress granted them a monopoly on the US dollar allowing them to create and destroy money (credit) as they see fit, all while manipulating interest rates. Tragically, they won’t even deny this. It’s policy and all explained on their website.


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