The FOMC has been doing a lot of “expecting” and “anticipating”

In his speech yesterday Bernanke stated:

Nearly eight years ago, when I began my time as Chairman, one of my priorities was to make the Federal Reserve more transparent–and, in particular, to make monetary policy as transparent and open as reasonably possible.

Let´s check out how he has performed relative to the “stable prices” mandate.

In the early months after the crash, the FOMC was still very much focused on headline inflation. That was certainly one of the reasons monetary policy was so tight going into the “Great Recession”:

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.(Oct 08).

In later occasions the FOMC doesn´t mention energy and commodity prices explicitly (maybe because they crashed):

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time. (Nov 09)

Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow. (Dec 10)

Fantastic! They anticipated inflation would remain excessively low:

The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations. (Dec 11)

The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective. (Dec 12)

The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective. (Apr/May 13)

Suddenly they acknowledge that “too low” inflation could pose risks. But instead of doing something about that they start “anticipating” that it will move back up in the medium term (are they evoking the “Holy Ghost”?):

The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term. (July 13)

In his latest speech Bernanke drops the risk part and only continues to “anticipate” that inflation will somehow rise:

The Committee additionally expected that inflation would be moving back toward its 2 percent objective over time. (Speech Nov 13)

The chart illustrates that they have for a long time “expected” and “anticipated” wrong. Lately, even, inflation has moved further down, not up as “anticipated”!


2 thoughts on “The FOMC has been doing a lot of “expecting” and “anticipating”

  1. Egads…the Fed remains obsessed with inflation. I see no reason for the Fed to change…why should it upset internal apple carts?

  2. 10-20 yr T-bonds are showing that the inflation dynamics will have to change quite a lot in the short term to achieve even the 2.5% of the Evans rule some time in 2015. I just don’t see it anywhere, unless the FOMC is STILL slavishly addicted to headline measures – which, I think is an entirely different conversation that should include the AS/AD model.

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