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Buzz & Banter


Well, there you have it. From my perch and through my monocle, it looks like the Fed still has an appetite for managing expectations, and thus, the economy. Very little difference from June 25th's policy statement, though hanging their hat on productivity (first paragraph), which corporations are increasing by shedding employees, isn't much of a confidence-booster. Spending is firming but employment trends are mixed. No mention of the strength in financial markets (stock prices and tighter spreads) this time. No need to parse the obvious, perhaps.

The only really interesting part of this statement, which we suspect gets lots of play on the Street, is their tortured effort to wink at the bond market that rates will be low for a long time. The June 25th statement ended like this: "...the probability, though minor, of an unwelcome substantial fall in inflation exceeds that of a pickup in inflation from its already low level. On balance, the Committee believes that the latter concern is likely to predominate for the foreseeable future."

How did this statement end? "...the risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future. In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period."

So the bond market is left to interpret the difference between a "considerable period" and "the foreseeable future." The only thing "large in amount, extent, or degree" is the hubris that births a strategy designed to manage an economy this large, this complex, and this globally inter-connected.
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