It seems the Establishment Survey is not all that convincing in FOMC circles. Actually, many of the committee members noticed that financial conditions had “tightened” in recent months and were worried a taper may accommodate further doses of that. As we know from the monetary textbook, tight financial conditions “could slow the economy if sustained.”

Above all else, stocks are celebrating that QE doesn’t work at all for any of its stated purposes. “Tight” financial conditions are the opposite of what policy is believed to produce, while a robust economy was, as it was proclaimed last September, a foregone conclusion. Yet, this is what we get:

ABOOK Sept 2013 FOMC Projections

Unless Q4 growth breaks completely out of trend, then the 2013 estimates are still overly optimistic.

The economy and stocks parted long ago; today was just further confirmation. It makes you wonder if the “certainty” whipped up this summer about September taper was just an academic experiment pushed into the real world, or if other factors changed some minds.  The Fed certainly hates “tightness“, perhaps even enough to keep the repo market in search of collateral.


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