One of the craziest things in our culture is the existence of Star Trek conventions.
The show only ran for about three years in the mid-1960s, and yet fans — most of whom were not even born when the show was broadcast — flock to these conventions by the thousands. Some of these participants speak to each other in “Klingon,” a made-up language from a fictional planet in the Star Trek universe. I often wonder — are they just making this up? How would anyone know?
That’s kind of how I felt reading the Fed’s latest press release. Judging by the words and phrases they use, it seems like they just made up a lexicon on the fly. Luckily, I’m here to help. I think I have a grasp on Fed-speak — or at least as good as anyone else — so I thought I’d offer my translations:
1) The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced.
Translation: Things could go up — or down — from here. It’s a toss-up.
2) The Committee continues to monitor inflation developments closely.
Translation: We don’t know what’s going on, but we're hoping to figure it out. We’ll get back to you if we think of something.
3) In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2% inflation.
Translation: We’re still trying to figure out what to do about employment and inflation. But if new numbers look different (“realized”), or if we have Mexican food for lunch and feel differently about the future (“expected”), we might just do something. Or not.
4) The Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting.
Translation: Don't expect anything to happen any time soon. We’re still looking at the economy, and we can’t figure it out.
5) Just because we removed the word “patient” from the statement doesn’t mean we are going to be impatient.
Translation: See? We can pretend to be lawyers too. The absence of patience is…oh, wait a minute, that really does mean impatient.
6) Looking ahead, however, the Committee continues to expect a moderate pace of GDP growth, with robust job gains and lower energy prices supporting household spending.
Translation: Everything will be fine, trust us. It will all work out. We control the world, remember?
7) While it is still the case that we consider it unlikely that economic conditions will warrant an increase in the target range at the April meeting, such an increase could be warranted at any later meeting, depending on how the economy evolves.
Translation: We won’t do anything at our next meeting, but after that, all bets are off. Deal with it.
8) Well, when an economy is operating at the so-called zero lower bound, it creates a situation where there are asymmetric risks. It is possible if the economy proves stronger than is expected to respond to that by tightening policy. If there are adverse shocks to demand that tend to push inflation and economic performance in an adverse direction it's not possible to lower rates.
Translation: We know things kind of suck around the world, and aren’t all sunshine and roses here at home, either. But we have to raise rates so that when our economy tanks again, we can lower rates and look like we’re doing something useful.
9) In some corporate debt markets, we do see evidence of unusually low spreads.
Translation: I don’t know what idiots are buying high yield debt at 5%, but they’re going to get smoked when we start raising rates!
10) The global experience shows that giving central banks independence to make monetary policy decisions that they think are in the best interest of the country and consistent with their mandates leads to lower inflation and more stable macroeconomic outcomes.
Translation: The central banks are doing great! Except for when we’ve fueled speculative bubbles and almost ruined the global financial system, but let’s not talk about that. We need more power, not less, so thanks for giving us sole oversight of the new Consumer Finance Protection Board.
11) I, you know, I think I need to be ready to answer questions on any aspect of Federal Reserve behavior, and that's an important principle.
Translation: Me worried about testifying to Congress? Are you kidding? I’m appointed for six years, report to no one, and am considered to be the most influential financial figure in the world. I don’t wait for appropriated money for my budget, I print it! Bring ‘em on.
OK, so maybe this was just a bit tongue-in-cheek, but it’s not far off the mark.
The Fed wants us to believe they are worried about the economy, and that raising rates will give it ammunition for the next recession.
That being said, they expect to raise rates very slowly, taking years to get anywhere near the widely accepted normal rate for fed funds, about 3.25%. This will keep real interest rates — whatever you earn, less inflation — below zero for at least another year, which will keep punishing savers in the hopes that people and businesses will load up on debt.
The strategy hasn’t worked so far...but that won’t stop them from trying.
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