I’ve read the FOMC statement release this afternoon. If you want to read it also, you can find it here. I’m not going to quote it extensively, if at all, only bring out some points that, if it weren’t such a serious matter, I’d find amusing.
It starts off with an acknowledgement of the dual mandate that includes both price stability and full employment. But it appears to be only lip service because nowhere in the dual mandate does it mention the unemployment rate which is mentioned in the release as evolving in a positive direction.
Full employment as stated in the mandate does not equal a low unemployment rate. Suppose a situation existed in which the prospects for the unemployed to become reemployed were dismal for a period of years to the point job seekers give up and exit the workforce. In that situation, the unemployment rate would decrease over time. I could be wrong, but I do not consider the lowest workforce participation rate for working age individuals since 1979 to be a positive evolution on the Fed’s full employment mandate; and I do not understand the intent of the mandate itself to foster the continuation of unacceptable monetary conditions that would result in reduction of the unemployment rate through workforce attrition.
The only positive development I have noted on the employment front is that the average weekly jobless claims have dropped recently from ~375k to ~330k. Fewer people are being laid off since the height of the monetary crisis, but that is hardly meaningful progress toward the full employment side of the mandate.
What is even more striking to me is that the statement mentions that the sentiment about inflation is that it is a bit below the rate deemed to be most consistent with the longer term definition of price stability; but there is little mention about how the 2% target will be hit or indications that the Fed will be even farther behind on its target in the near term within the statement itself.
What I see in the statement is a flashing red sign that the target does not matter. And because the target does not matter, there is more talk about preparations to decrease the monthly OMPs in QE3 in the statement than there is about increasing them while inflation indicators are falling.
There is no Bernanke-Evans Rule. There is no 2% inflation target. Monetary policy will be conducted via astrology, tea leaves or some other divination. It will be whatever the FOMC feels like doing on a given day. Its promises and commitments mean nothing; and the law means nothing.
Meanwhile, littered throughout the financial news websites is buzz about when the Fed will reduce monthly QE3 purchases, with the majority leaning toward the end of the year. There appears to be an unhealthy bias toward ending the purchases before either the inflation target is hit or there is meaningful progress on employment emanating from the press which I consider to be a form of media malpractice, fostering the abandonment of the rule of law by Fed officials and providing cover for the irresponsibility of these public servants.
Yes, there is supposed to be a symmetrical 2% inflation target if that is how the Fed chooses to define price stability, which it has. No, it shouldn’t include energy. And any Fed official who suggests otherwise either directly or indirectly through a bunch of Fed mumbo-jumbo should be called to the carpet and treated very badly by the press until they figure out what their job is supposed to be.
It isn’t just the economic profession that is having problems – it’s also these ignoramus financial reporters who don’t seem to be qualified to report on macroeconomics.