Proof Positive that the Fed Has No clue

Proof Positive that the Fed Has No clue  

Here is the Wall Street Journal's unedited transcript of an interview with the St. Louis Fed's James Bullard at Jackson Hole, Wyoming on August 27, 2016. The interview was conducted by WSJ senior reporter John Hilsenrath. This transcript exposes the extraordinary cynicism and intellectual poverty of the FOMC interest rate-setting process. They're clearly just making it up as they go along. This is what investors sit on the edges of their seats waiting for every few weeks.

Mr. Hilsenrath: What kind of compromise would it take to get the FOMC to move in September? I mean, so the tradition is there's some kind of - like you say, some kind of agreement. What would it take to get them there?

Mr. Bullard: Well, I have no idea, so - and it's really - it's really the chair's job to fashion that. But I will say that - I'll talk historically about the FOMC, the kinds of things that the FOMC would do. You would trade off. You would say, OK, we could hike today, but then we'll not plan to do anything in the future. That would be one way to - one way to go about a consensus. So that often happens on the FOMC. Or vice versa. If you read the Greenspan-era transcripts, he'll do things like, OK, we won't go today, but we'll kind of hint that we're pretty sure we're going to go next time.

Mr. Hilsenrath: Right.

Mr. Bullard: And so you get this inter-tempo kind of trade-off, and that often - that often is enough to get people to sign up.

Mr. Hilsenrath: So, hike today and then delay.

Mr. Bullard: Yeah. (Laughs.)

Mr. Hilsenrath: Or, no hike today and then no more delay.

Mr. Bullard: Yeah, yeah.

Mr. Hilsenrath: Something like that.

Mr. Bullard: Yeah, those kinds of trade-offs are, historically speaking - I'm not saying I know what Janet's doing, because I don't. But, historically speaking, those are the kinds of things that the FOMC has done.

Mr. Hilsenrath: I came up with my catchphrase for the - for the month. (Laughter.)

Mr. Bullard: Those are great. That's worthy of a T-shirt. (Laughs, laughter.) You could have one on the front and one on the back.

Ms. Torry: Or a headline.

Mr. Hilsenrath: Well, that's the St. Louis framework now, right?

Mr. Bullard: Yeah.

Mr. Hilsenrath: Hike today and then delay.

Mr. Bullard: Yeah. That's what it would be, yeah.

Mr. Hilsenrath: But if you decide to use that, maybe you can credit - you know, include a little footnote to the Wall Street Journal.

Mr. Bullard: OK. (Laughs.)

Three days later, on August 30, we got this gem of an interview with Fed Vice-Chair Stanley Fischer by Tom Keene on Bloomberg TV.

Keene: What did you learn about negative rates in the crucible of the markets? What have you learned in the last number of months?

Fischer: Well, we've learned that the central banks which are implementing them -- there were four or five of them -- basically think they're quite successful and are staying with their approach, possibly with the exception of Japan. They're thinking it through and they have said they'll come back to try and make negative rates work better. So we're in a world where they seem to work. I think one of the most interesting developments I've seen in theory is a paper that says, yes, they work up to a certain point and then they become counterproductive.

Keene: Precisely. Yes, that's a critical point. I mean we have within the interviews of Bloomberg Surveillance that Francine Lacqua and I have had Olivier Blanchard calls them an outright scam. Granted, he's not a public official anymore, I understand that. There is a raging debate about the efficacy of negative interest rates for central banks, for governments, and again for banking itself. What about the efficacy of negative rates for savers and the people of these different nations?

Fischer: Well, clearly there are different responses to negative rates. If you're a saver, they're very difficult to deal with and to accept, although typically they go along with quite decent equity prices. But we consider all that and we have to make trade-offs in economics all the time and the idea is the lower the interest rate the better it is for investors.

There you have it. Fed policy is all about "decent equity prices" and whatever is "better for investors", not the economy. Why has the Fed consistently promised rate hikes and failed to deliver? It's all about keeping stocks artificially inflated. Do you really think we will see rate hikes at the September 20/21 FOMC meeting?

‍