Fed Will be "Patient" as Low Inflation is "Transitory"

-edited

The Fed minutes of the April 30-May 1 FOMC meeting are posted. The Fed will be patient.

Please consider the Minutes of the Federal Open Market Committee for the meeting held on April 30 and continued on May 1.

Financial Stability

Among those participants who commented on financial stability, most highlighted recent developments related to leveraged loans and corporate bonds as well as the current high level of nonfinancial corporate indebtedness. A few participants suggested that heightened leverage and associated debt burdens could render the business sector more sensitive to economic downturns than would otherwise be the case. A couple of participants suggested that increases in bank capital in current circumstances with solid economic growth and strong profits could help support financial and macroeconomic stability over the longer run. A couple of participants observed that asset valuations in some markets appeared high, relative to fundamentals. A few participants commented on the positive role that the Board's semi-annual Financial Stability Report could play in facilitating public discussion of risks that could be present in some segments of the financial system.

Monetary Policy

In their discussion of monetary policy, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Participants judged that the labor market remained strong, and that information received over the intermeeting period showed that economic activity grew at a solid rate. However, both overall inflation and inflation for items other than food and energy had declined and were running below the Committee's 2 percent objective. A number of participants observed that some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated, including those related to the global economic outlook, Brexit, and trade negotiations. That said, these and other sources of uncertainty remained. In light of global economic and financial developments as well as muted inflation pressures, participants generally agreed that a patient approach to determining future adjustments to the target range for the federal funds rate remained appropriate. Participants noted that even if global economic and financial conditions continued to improve, a patient approach would likely remain warranted, especially in an environment of continued moderate economic growth and muted inflation pressures.

Continued Low Inflation

Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. Several participants also judged that patience in adjusting policy was consistent with the Committee's balanced approach to achieving its objectives in current circumstances in which resource utilization appeared to be high while inflation continued to run below the Committee's symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee's objective, or that the Committee would need to be attentive to the possibility that inflation pressures could build quickly in an environment of tight resource utilization. In contrast, a few other participants observed that subdued inflation coupled with real wage gains roughly in line with productivity growth might indicate that resource utilization was not as high as the recent low readings of the unemployment rate by themselves would suggest. Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee's symmetric 2 percent objective—a development that could make it more difficult to achieve the 2 percent inflation objective on a sustainable basis over the longer run. Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data.

Summation

The Fed is as clueless as ever but they will be patient about it.

If the Fed understood what inflation is, we would not be in another massive bubble.

Note the Fed Lie of the Day: "Low Inflation is One of the Major Challenges of Our Time"

Hello Jerome Powell

I addressed the silliness of inflation expectations in Hello Jerome Powell, We Have Questions.

If you have not done so, or if you need a refresher course, please give that a look.

Mike "Mish" Shedlock

Comments (27)
No. 1-14
Casual_Observer
Casual_Observer

I can feel it at the grocery store. Literally cant get out for less than $100 per trip. The reason most people spend to their income level is because of inflation.

abend237-04
abend237-04

Productivity improvements, the basis of living standard progress, are DEFLATIONARY, some are profoundly so. Running a 2% INFLATIONARY monetary policy in the middle of an ongoing technological revolution is insanity.

In 1992, our flag ship 30 Gigabyte disk product where I worked sold for $300,000. Today, 30 Gigs goes for less than ninety cents. That's 60% annual price per Gigabyte erosion over a period of 27 years.

Using the Fed's 2% inflation model instead would have us paying $512,000 for the 30 Gigs today. Insanity...indeed.

lol
lol

There is nothing in this economy to be optimistic about,not even close and the fed knows it.The federal gov't is inching closer to missing a payment on the 650 billion dollar interest payment this year...…….then what...….without massive increase in money printing the treasury will not be able to front run the 3 trillion in red ink in it's piling !!

DFWRealEstate
DFWRealEstate

What a cabal of willfully ignorant fools.

"There was a risk that inflation expectations could become anchored at levels below those consistent with the committee's symmetric 2 percent objective."

Pretty much a given now that they have thrown $trillions in trickle-down stimulus into a corrupt financial system...all for what? Just so they could save their banker friends and and every zombie corporation on Wall Street.

One thing which is certainly not "transitory" is the Fed's fealty to Wall Street and the crooks who run it.

Bam_Man
Bam_Man

100% pure bullsh*t.

RonJ
RonJ

"The Fed will be patient."

The FED said it was on autopilot. A 20% drop in the stock market changed that. The FED saying it will be patient has little meaning.

"Many participants viewed the recent dip in PCE inflation as likely to be transitory..."

Dips are transitory. The 57% decline in the S&P 500 was transitory. The 90% decline of the DOW into 1932 was transitory.

RonJ
RonJ

"Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee's symmetric 2 percent objective..."

Maybe the problem is asymmetric.

The FED's money went into the pockets of the one percent or so. Corporations bought back stock instead of hiring new people, who then had money to spend into the economy, driving up inflation. Despite the official unemployment rate being below 4%, some 100 million working age people are still not employed, so they say.

C. P. Roberts
C. P. Roberts

The bad thing is there is no real coverage from msm or the political pukes that want everyone to believe everything is coming up roses. I guess until max debt is achieved it will continue to be so.

BigGringo
BigGringo

Mish, I always here alot from you about what the Fed is doing wrong.

If you were Fed Chairman, what would be most important to you and what would you be doing right now?

Runner Dan
Runner Dan

Note the Fed Lie of the Day: "Low Inflation is One of the Major Challenges of Our Time"

Not altogether a lie seeing that the resulting policies implemented as a result of the “bad low inflation” hurts everyone who doesn’t profit from the scam.

ReadyKilowatt
ReadyKilowatt

We're still told that passive mutual funds will always be the best investment, stock buybacks are the best way companies can build value and everyone wants to work until they're 80.

Let interest rates float to their natural level and the whole thing will come crashing down. But in return we'll get rid of p̶e̶t̶s̶.̶c̶o̶m̶ Lyft, get back to real investing, and some of the old timers will take up fly fishing instead of hanging on to their antiquated ideas.

AliceSmith
AliceSmith

Fed Measures "price" inflation. If "content" inflation was measured, then different story. Packages content getting smaller, liquids being diluted, services getting cut short and more prone to error, etc. The Fed measures the numerator, not the denominator. Is Technology making us all more productive ? Ask yourself how many times you've done your own technical troubleshooting. Sounds like spending more time on a fixed good. Time is money. Not in the data. Even the Federal Reserve sounds more and more like a elementary school child explaining inflation.

hmk
hmk

The numbers are deliberately deceptive and underreport true inflation. The reasons are obvious. What is not obvious is why has there not been anyone taking these people to task for their lies. The emperor has no clothes.