FOMC Minutes

Yes, yes, the big non-news is that almost all participants favored a 25 bp rate hike (but we knew that, because they made a 25 bp rate hike). Sadly, in this psychedelic mishmash of confused, confusing and self-contradictory deliberations and improvisations, they continue to insist that "a period of below-trend growth in real GDP would be needed to bring aggregate demand into better balance with aggregate supply and thereby reduce inflationary pressures." Then what do we make of it that they admit, here in writing, that "to the extent national unemployment increases, historical evidence indicates that even larger increases in the unemployment rate for some demographic groups -- particularly African Americans and Hispanics -- would be likely to occur"? Having made this admission, how can they possibly cause this to happen and hope to survive politically?

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."