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Denninger Interprets The FOMC Statement

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate. It's called Deflation jackass. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings. God forbid we stop drinking. We might have DTs. The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate. "Accommodation"? By doing what? You've already smashed long and short rates through the floor. Further "accommodation" does nothing other than further inhibiting lending. Why would a bank take risk by lending when it can simply borrow money for zero and buy Treasuries, then REPO those into more cash for more Treasuries? That's a zero-risk trade, right? (Hint: No it's not even though under bank accounting rules it counts as one, but the why and how is left as an exercise for the reader.) Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. We'll never admit we're wrong - even as we go in the wood-chipper of history - feet first. Voting against the policy was Thomas M. Hoenig, who judged that the economy continues to recover at a moderate pace. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and will lead to future imbalances that undermine stable long-run growth. In addition, given economic and financial conditions, Mr. Hoenig did not believe that continuing to reinvest principal payments from its securities holdings was required to support the Committee’s policy objectives. Now if Mr. Hoenig would simply say "doing this is destroying capital formation", we'd actually have a brain exhibited on the FOMC. So far, no sign.

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