Reading the minutes from a Federal Reserve Open Markets Committee (FOMC) meeting can be frustrating and downright painful. The committee literally has dozens of hands and keeps on looking at another.
A newswire story citing a minor shift towards concern over slow economic growth from inflation caused me to look at the release closely.
I guess it was there somewhere but darned if I could find it. It is odd that they would abandon their shift from inflation after only just discovering it despite it being apparent for quite some time. But as Economist John Williams noted in the July issue of Futures, “The Fed is not concerned with inflation. It is not concerned about the economy…its primary function is keeping the banking system solvent.”
And raising the Fed Funds rate will not help on that score. So while its new found hawkishness earlier in the summer pushed expectations for a round of tightening by yearend, that expectation has drifted away and now rates are expected to remain at 2% through yearend. And as several analysts have predicted the next move may be another easing. After all, if they can ease with 4.9% GDP and elevated inflation as they did last year, they can ease whenever.
While the Fed talks of inflation, Williams points out that the cost of the Fed providing liquidity to troubled banks is ultimately more inflation. But they will worry about that once the solvency crisis is over and we still do not know when that will happen.