What has monetary policy been brought to! A ‘middle-school level ‘debating society’!:
The next big decision for Federal Reserve officials isn’t deciding whether they want to raise short-term interest rates in June. It is deciding whether they want to have the option to do so.
The Fed’s next policy meeting is March 17-18. Officials will have had a chance to peruse two more monthly jobs reports and a range of other economic data by then. If officials think a June interest rate increase is a possibility, they will need to remove an assurance that the central bank will be “patient” before raising rates.
The “patient” assurance, Fed chairwoman Janet Yellen has said, means no rate increases for at least two more policy meetings. The next two policy meetings after March are in April and June. If officials think they might raise rates in June, they need to remove “patient” in March to give themselves the option to proceed if economic data justify a move by June.
The challenge for the Fed is that the “patient” assurance gives investors some certitude about what the central bank won’t do – it won’t raise rates for two policy meetings — but it doesn’t speak directly to what the Fed will do. Fed officials might want to remove the “patient” assurance, and then wait and see if a rate increase is justified at midyear. The problem is, investors might(!) take the removal of the “patient” reference as an indication that a rate increase is a sure thing for June, pushing asset prices before Fed officials are sure and have reached consensus on moving rates higher.
And Bullard,’ debating for the affirmative’, shows the full extent of his ignorance on monetary policy matters:
Other Fed officials are very attuned to the challenge. St. Louis Fed President James Bullard, in a public interview with me at the University of Delaware earlier this week, spoke directly to it.
“I would take (patient) out to provide optionality for the following meeting after that,” he said. “It doesn’t mean we’re going to do anything.”