I’ve been in a bit of a funk over the last few weeks. I’ve had some heavy duty personal things going on that you probably don’t want to read about; and so my focus is very off center. It doesn’t leave me with much to do except point out the occasional Fed president talking to hear himself talk as I read it in the news because at the moment I cannot read anything more than a few pages long without my thoughts wandering to the problems of the moment.
Now, Mr. Dudley may not be all that bad of a guy. But in this article I read on Bloomberg about a talk he gave last week, I am very curious about what he might think Humphrey-Hawkins means when he says that austerity is a risk to the economic outlook. It could be interpreted a few different ways but none of possible sensible ways are consistent with the mandates of “… manag[ing] credit and monetary aggregates commensurate with the economy’s long run ability to increase production, so as to promote maximum employment, stable prices, and moderate long term interest rates.” And since the mandates are prefaced with “shall,” it would seem that no matter how we interpret the details of his statement, he is saying that the FOMC isn’t going to oblige itself to the law; and he may not be aware of the murkiness he is adding to expectations management.
This is an entirely optional demand shock the FOMC, according to Dudley, is willing to foist on the economy. And a nagging question in my mind is: Why? The target for core PCE is 2% which isn’t anywhere on the horizon. We still have persistently high unemployment, the smallest labor force since 1979; and the last I checked, we’re at the ZLB. All of the more or less official indicators are way below target and he is saying the FOMC will just sit around and watch a demand shock unfold. Now how are people who understand what’s being said here supposed to react to this?
Well I can start by saying it’s completely irresponsible to not do what the law says is one’s job simply because there is someone else to blame for the doo-doo hitting the fan that happens when it doesn’t get done. Does passing the buck make it so he can sleep at night? And that seems like a very fair question to ask considering that it means more unemployment, more people losing things they’ve worked for all their lives, and more people on social programs as a consolation prize for being robbed of self-sufficiency. It appears to be quite scandalous of a statement to me; and I’m amazed at the lack of outrage, and the ability Dudley and his colleagues have of dropping this kind of bomb and not being challenged.
There is no good reason to allow a demand shock to occur from government budget cuts. He and his likeminded colleagues ought to be ashamed of themselves. The only risk to the economic outlook is derelict and negligent central bankers.