Another Interpretation

One of the mainstream financial websites interpreted the statement from last week's Fed policy meeting. Here's a less politically correct interpretation from the point of view of the author:

Release Date: March 22, 2005

For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 2-3/4 percent.

A surprise move of 50 basis points might bring down the whole house of cards - as long as the house is still standing, there's no need to do anything rash. We're hoping we can get far enough into the rate raising cycle so that we can make a surprise move or two back down (hopefully, after I retire).

The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.

Yes, after several years of negative real interest rates, we're still calling it "accommodative" - others might call it "reckless", "irresponsible", or "running out the clock until I retire", but we'll keep calling it "accommodative". As for productivity, you know, we've gotten so much mileage out of this "productivity" angle, there really is no reason to stop using it now - it's like, we can use "productivity" to explain just about anything.

Output evidently continues to grow at a solid pace despite the rise in energy prices, and labor market conditions continue to improve gradually.

We're going to use the word "evidently" here because we don't really know - none of our models seem to work anymore. We hear good things we hear bad things ... we think it's growing.

Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident. The rise in energy prices, however, has not notably fed through to core consumer prices.

Of course these are MY expectations of longer-term inflation - I'm 79 and I'm retiring in less than a year - your time horizon may be different ... good luck with that. Now, we have to be very careful with this next part - this $55 oil has kind of forced my hand. We have to acknowledge rising prices somehow - I don't think people are buying our 2-3% CPI numbers with what they see in house prices, gas prices, and such. We don't want to get everyone too excited - even just mentioning the "I" word, everyone's going to be saying "The Fed's worried about inflation, the Fed's worried about inflation", and the currency and bond markets are going to go crazy, and who knows what else ... I know ... I'll get the "I" word out on the table, then talk about "pricing power" (good for business, good for the bottom line), then kind of dismiss it by saying that you, as the consumer, do not have to be concerned because it will not be fed through to you - it will have no affect on your life - just keep on doing what you were doing, secure in the knowledge that long-term inflation expectations are well contained.

The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal.

Now when we say "sustainable growth", keep in mind, I'm retiring in less than a year. We've had to print lots of money and create lots of credit just to get this far, and millions of people are in debt way over their heads, but it has produced growth. And, as for price stability, it is entirely possible that we will have to find new, creative ways to calculate consumer prices, so that we can ensure that prices remain stable - maybe if the housing bubble bursts, millions get foreclosed on, and have to rent homes, thus forcing rental prices up - then we'll start using actual house prices in the CPI calculation instead of imputed rent, and this will offset $5 per gallon gas ... well hopefully, this will be Bernanke's problem.

With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.

Yes, inflation is contained, long-term inflation, underlying inflation, it's all contained - no problems here, go on about your business. Measured? Measured? That blasted word - why did I ever use that word? How am I ever going to get rid of it? Let's see, how many more Fed meetings? Can I just keep using that word at every meeting until I retire? I keep getting the feeling that if I stop saying "measured", life as we know it will come to an abrupt end.

Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

What this means is that if things start falling apart between now and when I retire, I can call Cheney and ask him to start bombing somebody - he owes me BIG time. Then I can yell "deflation" and cut rates to zero - this should allow everyone to refinance again, and this should get us through to next January.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern.

It's unanimous!

In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 3-3/4 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, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco.

Who cares?