Take a look at this graph (NGDP Great Moderation Trend):
Apparently, it isn’t anywhere in sight during FOMC meetings. It probably isn’t even anywhere within miles of the meeting hall.
Just to remind myself what the FOMC is supposed to care about, I keep repeating this, the legislative mandates that were amended to the Federal Reserve Act by the Full Employment and Balanced Growth Act when signed into law in October of 1978:
[The Federal Reserve] shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
Given the law, and looks of this graph, it is difficult to comprehend the closing paragraph from the latest minutes release:
Members stressed that any changes to the purchase program should be conditional on continuing assessments both of labor market and inflation developments and of the efficacy and costs of asset purchases. In light of the current review of benefits and costs, one member judged that the pace of purchases should ideally be slowed immediately. A few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year. Several others thought that if the outlook for labor market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end. Two members indicated that purchases might well continue at the current pace at least through the end of the year. It was also noted that were the outlook to deteriorate, the pace of purchases could be increased.
It’s difficult to comprehend these earlier statements made people who are supposed to be bound to doing at least two of the parts of the mandate, that serve as a basis for the decision:
Participants generally agreed that asset purchases also have potential costs and risks. In particular, participants pointed to possible risks to the stability of the financial system, the functioning of particular financial markets, the smooth withdrawal of monetary accommodation when it eventually becomes appropriate, and the Federal Reserve’s net income. Their views on the practical importance of these risks varied, as did their prescriptions for mitigating them. Asset purchases were seen by some as having a potential to contribute to imbalances in financial markets and asset prices, which could undermine financial stability over time. Moreover, to the extent that asset purchases push down longer-term interest rates, they potentially expose financial markets to a rapid rise in those rates in the future, which could impose significant losses on some investors and intermediaries.
Nevertheless, a number of participants remained concerned about the potential for financial stability risks to build. One consequence of asset purchases has been the increase in the Federal Reserve’s net income and its remittances to the Treasury, but those values were projected to decline, perhaps even to zero for a time, as the Committee eventually withdraws policy accommodation. Some participants were concerned that a substantial decline in remittances might lead to an adverse public reaction or potentially undermine Federal Reserve credibility or effectiveness. The possibility of such outcomes was seen as necessitating clear communications about the outlook for Federal Reserve net income. Several participants stated that such risks should not inhibit the Committee from pursuing its mandated objectives for inflation and employment.
Some participants also were concerned that additional asset purchases could complicate the eventual firming of policy–for example, by impairing the Committee’s control over the federal funds rate. A few participants raised the possibility of an undesirable rise in inflation.
Another exit-related concern was a possible adverse effect on market functioning from MBS sales during the normalization of the Federal Reserve’s balance sheet.
A few participants noted that curtailing the purchase program was the most direct way to mitigate the costs and risks.
In light of their discussion of the benefits and costs of asset purchases, participants discussed their views on the appropriate course for the current asset purchase program. A few participants noted that they already viewed the costs as likely outweighing the benefits and so would like to bring the program to a close relatively soon. A few others saw the risks as increasing fairly quickly with the size of the Federal Reserve’s balance sheet and judged that the pace of purchases would likely need to be reduced before long. Many participants, including some of those who were focused on the increasing risks, expressed the view that continued solid improvement in the outlook for the labor market could prompt the Committee to slow the pace of purchases beginning at some point over the next several meetings, while a few participants suggested that economic conditions would likely justify continuing the program at its current pace at least until late in the year.
I’ve got a hint for the clueless clowns on the FOMC: You aren’t supposed to care about asset prices, excess risk-taking, banks or being a governmental cash cow.
But given the discussion here it is quite plain that those are exactly the drivers for the nervous Nellies to want to turn tail and run from their legal responsibilities. Screw average people who have been denied a basic means of survival in addition to losing nearly everything over the last 5 years.
God help us.