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A Patient Fed Considers Losing Patience

March 10, 2015

A Patient Fed Considers Losing Patience

I have always argued that quantitative easing and zero percent interest rates were misguided policies to combat economic weakness. But as the years went on, misguided turned into irresponsible, which led to ridiculous, and then turned into dangerous. But lately, the only word that comes to mind is “surreal.” How should we react when central bankers begin to speak like Willie Wonka?
Contained in the latest release of the Minutes of the Federal Reserve’s Open Market Committee (Jan. 27-28, 2015) was a lively discussion of how to say something without anyone understanding what is being said. Although I have been critical of the Fed for many years, I never imagined that it would provide me with material that bordered on the metaphysical.
As Fed policies have become ever more critical to our economic health and stock market performance (see our 2015 Outlook piece in our latest newsletter), the degree to which investors and journalists dissect every public statement and utterance by Fed officials has increased remarkably. At present, one of the biggest points of contention is to find the true meaning and significance of the word “patient.”
Last year, as market watchers grew nervous with the Fed’s withdrawal of its quantitative easing purchases, many began to wonder how long it would be, after the program came to an end, for the Fed to actually raise interest rates, which had remained at zero since 2008. After all, this would shift the bank into a second, potentially more consequential, phase of monetary tightening. Investors wanted to know what to expect.

 

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Olduvai IV: Courage
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Olduvai II: Exodus
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