I’ve read about and seen videos of Fed officials assuring us that 2% inflation, a price level apocalypse, is just right around the corner for… How many years now? I lost count. Perhaps those at the Fed thought it would come true if they kept repeating it ad nauseaum, like maybe the base would magically expand, and too many people would get jobs, pushing up wage inflation pressure by wishing it so.

In his latest trip to the alter for a testimonial to the faithful, Stanley Fischer was sure that hitting the target was nigh and that he and his colleagues had not a minute to spare to act.

But something funny happened on the way to the pearly gates of “normal” monetary policy where fretting over a ¼ point here and ¼ point there is common place. One of them, who for now shall remain nameless, looked behind the curtain and found something they didn’t expect… No hitting of the target until 2018!!

Now I have to be honest. I fully expected them to remain faithful, full of mettle for doing what, as they have been insisting, must be done come hell and high water. I am pleasantly surprised to find a faint glimmer of rationality among the Fed-borg madness, less confidence in defunct models, and more confidence in the data points of reality.

But of course, coming clean in some small but meaningful way does have its down side. Certainly if the Fed will fail to hit its target until 2018, it must mean something. Inflation was below target before the collapse in oil prices, and the very low values now have been compounded by this development, but would be below target nonetheless. Yet in the statement, the low measures are still blamed on oil and there doesn’t appear to be any commitment to actively attempt to hit the target with oil stripped out.

If raising interest rates is not the thing to be doing, what, then, is the thing to be doing if doing nothing won’t get us to the target until 2018, with that forecast being more of a “if all things remain the same” kind of forecast? It certainly cannot be nothing, as I remember quite clearly that doing nothing in September 2008 was a mistake, and with China’s issues, we’ve got more bad news on the horizon than good.

It might be that, instead of fretting about achieving the target being way off in the future, the assumption was made that the turmoil in China did more to tighten policy than Fed official could have with a ¼ point FF hike and they’d let it stand. Still rational, but in no way responsible.

Food for thought.

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