FOMC Minutes

The importance of slowing down the pace of tightening to assess lagged economic effects is discussed and documented heavily. The possibility that rates in this cycle might have to go higher than expected is barely mentioned. In a similar asymmetry, the minutes start with a discussion about the importance of ethical behavior by FOMC members. But not a word acknowledging the multiple recent lapses. 

Participants anticipated a low CPI print after the July meeting, driven by falling gasoline prices. But while they insist that high gas prices raise inflation, they deny that falling prices can lower inflation: "these prices could quickly rebound." Same for anticipated improvements in supply chains: they "could not be relied on to resolve the supply and demand imbalances in the economy" (yet the same committee said they created the imbalances on the way up). And they fret about rising wages fueling inflation, yet say there is an "apparent absence of a wage-price spiral." So "moving to a restrictive stance of policy was required." And not one word about the money supply. Let's say it out loud: these people are dangerous fools.

World as a nail, meet the Fed's hammer. The FOMC said the Fed plays "a central role" in addressing supply/demand mismatches. Easing supply bottlenecks "could help" as an "additional factor."

No surprises, except that there were no surprises for a change. A long colloquium on inflation, with all but two sentences focused on its origin in temporary supply-chain disruptions. The word "transitory" is gone, but not the belief-structure. Be that as it may, balance sheet run-off -- not asset sales! -- to begin "sometime later this year."