In light of what I detailed yesterday about the real reason the Fed is proclaiming economic success and an end to ZIRP, today’s minutes reveal a good deal of internal discussion leading toward that idea. The first part being that there is no wage growth today, and thus this notion of “transitory” non-inflation being nothing more than faith:
Although a few participants suggested that the recent uptick in the employment cost index or average hourly earnings could be a tentative sign of an upturn in wage growth, most participants saw no clear evidence of a broad-based acceleration in wages.
That’s more than a little disappointing given how robust the economy is supposed to be right now, if only because their conception of economic process is limited to some mathematical representation like GDP. This is not exclusive to 2014, as the FOMC has been expecting, proclaiming and then awaiting wage “inflation” for years now. Admitting that 2014 was the latest calendar to go without it is really quite damning.
And it appears a few of the FOMC members are growing uncomfortable with all these market-based indications that are expressing serious misgivings about the outlook; thus according with the economic view provided by no wage growth.
Some participants were worried that the recent substantial fall in energy prices could lead to a reduction in longer-term inflation expectations, while others were concerned that the decline in market-based measures of inflation compensation might reflect, in part, that such a decline had already begun.
That passage is far more consistent with orthodox tendencies, and offers further confirmation that the recent embrace of falling oil prices is at best uncomfortable (at worst, as I said yesterday, disingenuous). Credit and funding markets are not at all enamored with the current circumstances, and, contrary to how they present themselves in public, the FOMC is at least bothered about it. And they should be.
The point of all this is a rhetorical exercise to un-blend the tangled web of misdirection to distill or unpack what I think is the prurient focus of the FOMC with regard to policy:
The risks to the forecast for real GDP growth and inflation were viewed as tilted a little to the downside, reflecting the staff’s assessment that neither monetary policy nor fiscal policy was well positioned to help the economy withstand adverse shocks. [emphasis added]
If the economy were to fall off in the near future, a possibility to which they are very worried that credit markets might be right about, there is little monetary policy can do to render “aid” in that situation. Of course, I don’t believe monetary policy is helpful in any sense, and it certainly wasn’t much of anything in 2007-09, but that is not what the orthodox textbook declares. If the FOMC is worried about the near-term turning against them, they believe it their sworn duty to interfere – but first they have to reposition everything so that they may do so. Thus QE must end, leading them to at least threaten the end of ZIRP. Preservation of the policy “surprise” is, I believe, the true aim here and has been before even Yellen succeeded Bernanke.