This is getting ridiculous.
At this rate there won’t be any point logging on to read the FOMC minutes on Wednesday evening. FedWire, the unofficial/official news service of the Federal Reserve, has done such a comprehensive briefing the market on what to expect that there can’t possibly be any surprises… can there?
Monday’s FedWire bulletin:
Federal Reserve officials, worried that a wobbly economy and their fractious debates are confusing the public, are examining whether to adopt more explicit economic targets to clarify their strategy for lowering unemployment without fueling inflation.
Fed Chairman Ben Bernanke has asked Philadelphia Fed President Charles Plosser and Chicago Fed President Charles Evans, two intellectual adversaries, to work with Vice Chairwoman Janet Yellen on how the Fed can better explain its economic goals to the public. One issue high on the agenda: Detail what changes in unemployment and inflation it would take to make the central bank veer from its low interest-rate policy, according to people familiar with the matter.
Hmm. This sounds somewhat like the plan put forward by Charles Evans, president of the Chicago Fed, who wants a rebalancing of the Fed’s dual mandate towards employment. Specifically a commitment to keep the federal funds rate at its current level until the unemployment rate has fallen to 7 per cent-7.5 per cent, provided core inflation does not exceed 3 per cent.
FedWire says that while Bernanke has enough sway to push this through but will wait until there’s been a full discussion. In other words, the FOMC will have a discussion and then decide the Chairman was right. Democracy in action, then.
What we will get, says FedWire, is Operation Twist Mark II.
Fed officials are likely to consider other steps they might take to boost the ailing economy in the short-run when they meet Tuesday and Wednesday, including altering the composition of the Fed’s portfolio of securities so that it holds more long-term debt. The idea would be to push down long-term interest rates to stimulate more investment and spending. They also could try to encourage lending by cutting the 0.25% interest rate currently paid to private banks when they park money at the central bank.
And before anyone asks there is no split on the FOMC.
Mr. Bernanke and many other officials dismiss the idea that he’s confronting a rebellion inside the Fed. They argue that internal disagreement is a sign of strength because it shows officials are wrestling earnestly with hard questions and have their eyes wide open to the challenges they face. “My attitude has always been: if two people always agree, one of them is redundant,” Mr. Bernanke said earlier this month in Minneapolis.
Now it’s probably not surprising the Fed is trying to prepare the ground in this way. After all there are a lot of people out there who want more radical stimulus measures, such as QE3 — in spite of the mounting evidence that it will do nothing to improve banking lending.
In that respect the recent messages from FedWire could be helpful in lowering expectations. But the level of detail in these briefings is still astounding.
Related link:
FedWire – FT Alphaville