FED’s “Do Not Worry, We Have Control” Message Met With Suspicion

Investors have occasionally complained about the polyphony from FED members in the past, longing for the good old times when a dominant president like Alan Greenspan was the only voice worth listening to.

Be careful what you want. Since then all members of the Federal Open Market Committee have voiced their views, but now they are all saying the same thing, and doubts are growing that they are fully speaking the truth.

Many Voices, One Provision … So True?

From the Hawk Boston FED President to the pigeon San Francisco Fed President, the message is largely the same: Don’t worry, be happy.

In an interview last week, Rosenglern replied to the question of the timing of interest rate hikes, “I think we are two years away from when this question will become much more important.”

“There is still a serious deficit in the employment market, the participation rate is still very low compared to before the epidemic, and the unemployment rate is still at 6%. So before we raise the issue of increasing interest rates, we must close this gap and achieve a sustainable inflation rate.”

Similarly, Daly stated that the FED is aiming for a much higher and consistently high workforce. Daly answered the question of when this might happen:

“There is a little more time for that. First we have to achieve full employment. Before we declare victory, we must bring the unemployment rate back to its previous level, return all employees who have left the workforce — especially women who have left the workforce to take care of their children.”

The FED has been working hard to raise inflation, and it will not end this effort anytime soon. Daly:

“We always have the tools to lower inflation if it goes too high. I see a temporary rise in inflation; it will go down again. I am much more worried about restoring full employment and bringing inflation to our average target of 2%.”
The President of the New York FED expressed the same thing in his speech with Rutgers University students in New Jersey. “We know how to deal with inflation,” Williams said, adding that he expects price increases to remain close to the FED’s 2% target.

FED members generally seem to want to give the impression that the situation is under their complete control. Lorrie Logan, Vice President of the New York Fed, which manages open market operations for the system, said the central bank has tight control over short-term interest rates through overnight repos.

The members decided to raise the limit on the two sides from $ 30 billion to $ 80 billion in March, creating a wider scope in this area, and the FED is ready to make the necessary technical arrangements to keep interest rates at the desired level, according to Logan.

FED Chairman Jerome Powell said that at some point in the future, when the FED wants to reduce its monthly asset purchases — now around $ 120 billion — it will follow the model created in 2013 and 2014.

The FED will slow down asset purchases, but it will likely not sell any bonds, at least for a while, and reinvest the principal as maturity expires. Powell stated that this will create a good environment before any hike in interest rates and that these steps will not start for a while. According to Powell, “serious progress” must first be made in the employment and inflation targets.

However, some are not sure that everything is under the control of the FED. Odeon Capital strategist Dick Bove told Maria Bartiromo on the Fox Business News program that he thought the FED had lost control of the money supply. “The FED is out of control, it is printing money like crazy.”

In a relatively sober language, The Economist editors also said that the FED should tell investors how it plans to deal with inflation because its new policy of targeting an average on inflation is still not fully clear and creates uncertainty.

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