By staying pat on the FF rate, but constantly saying they “would like to begin to normalize policy” this year, Janet & Friends are in effect enlarging the hole that will eventually sink the ship!
Why have they been procrastinating for so long? As history attests (here, here see notes below)), the Fed is terribly afraid of being accused of having sunk the ship. They just don´t see that they are doing exactly that, so far in “slow motion”!
At the November 1937 FOMC meeting John Williams, a Harvard professor, member of the Fed board and its chief-economist said:
We all know how it developed. There was a feeling last spring that things were going pretty fast … we had about six months of incipient boom conditions with rapid rise of prices, price and wage spirals and forward buying and you will recall that last spring there were dangers of a run-away situation which would bring the recovery prematurely to a close. We all felt, as a result of that, that some recession was desirable … We have had continued ease of money all through the depression. We have never had a recovery like that. It follows from that that we can’t count upon a policy of monetary ease as a major corrective. … In response to an inquiry by Mr. Davis as to how the increase in reserve requirements has been in the picture, Mr. Williams stated that it was not the cause but rather the occasion for the change. … It is a coincidence in time. … If action is taken now it will be rationalized that, in the event of recovery, the action was what was needed and the System was the cause of the downturn. It makes a bad record and confused thinking. I am convinced that the thing is primarily non-monetary and I would like to see it through on that ground.
It seems “being afraid” is in their DNA. This is Tim Geithner in 2008:
The argument that makes me most uncomfortable here around the table today is the suggestion several of you have made—I’m not sure you meant it this way—which is that the actions by this Committee contributed to the erosion of confidence—a deeply unfair suggestion.
… But please be very careful, certainly outside this room, about adding to the perception that the actions by this body were a substantial contributor to the erosion in confidence.