The illogical Fed

If the FOMC has systematically downgraded its forecasts as shown in the table below, why is it that they “feel” the time is nearing for a rate rise?

FOMC Projections

FOMC Forecast6-15

Regarding inflation, their “anticipation” in June 2013 is quite inconsistent with their forecast at the time.

June 13

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

In June 2014 they recognize the risk of persistently “too low” inflation. But according to their forecast at the time, it appears they thought inflation would rise on its own volition!

June 14

The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

Today, they finally conclude that inflation will remain low for now, but remain “wishful” it will converge to target!

June 15

Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

Could the “rate anxiety” be because the unemployment rate has persistently surprised them on the “downside”? Since the FOMC has “elected” unemployment as the “guiding light”, and think that being close to a rate around 5% is the “trigger” for the FF rate, that´s the only logical explanation.

But according to new Fed research, once again they may be frustrated.

One thought on “The illogical Fed

  1. Sadly, the Fed should be asking itself is it time to do more QE, not is it time to raise interest rates.

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