My vote for the best question so far goes to CBNC’s Steve Leisman, who pressed Chairman Powell on the disconnect between the FOMC’s stated goal of the exceeding 2% inflation and the lack of any inflation in excess of 2% in its own forecasts. Powell stumbled through Leisman’s minefield mumbling vague generalities about the Fed’s confidence in its ability to achieve its goals, despite literally forecasting it will fail.
The real problem Powell is struggling with goes deeper … he’s not being honest with us about the Fed’s goals in the first place. Occam’s Razor suggests the most accurate explanation is the simplest one that fits the facts. What the Fed wants to do is support Wall Street and Washington, by buoying asset prices and keeping interest rates low to enable federal deficit spending. By sending a message that it intends to keep fed funds nailed to zero until 2023, it pulls Treasury rates towards that level in the short part of the yield curve where the Treasury does most of its borrowing.
The FOMC’s official line is not credible. It simply can’t tell us its policy takes into account ongoing developments and that it will “adjust our plans as appropriate” and at the same time tell us what policy is going to be for three years into the future. It can’t tell us on one hand that uncertainty about the future is exceptionally high and that it already knows what the best monetary policy will be. It can have it one way or the other but not both.
The people on the FOMC can’t be so dull as to not see the flaws in their own positions. Unfortunately the alternative explanation to incompetence is even less attractive; dishonesty.
Why wouldn’t the Fed be honest with us about the basis for its policy? Because the basis it’s using isn’t its legal mandate. Its charge is to keep prices stable, unemployment low, and interest rates moderate. Not to inflate stock prices. Printing money to fund Congress’s spending deficits isn’t either, but it gives the Fed a way of buying off Congress so that Congress will look the other way while it violates its formal Congressional mandates.
This also explains the otherwise inexplicable 2% inflation target. How does “price stability” morph first into 2% inflation and then over 2% inflation? It doesn’t – the Fed’s goal is to violate its mandate – with rhetorical cover calculated to justify in Orwellian fashion. Even if the 2% target were justified, the Fed could achieve it in an instant – merely by choosing a different measure of inflation. Why would it select the measure that gives the lowest readings? The Fed’s working goals are readily understood not in terms of its statutory mandates but in terms of its actual behavior, and the aforementioned support of Wall and Washington explains its behavior to a T. Unfortunately, that means that the welfare of the American economy and the living standards of the American people as a whole suffer.