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Next Week's FOMC: A Third Bowl Of Peanuts

Last week, Chairman Bernanke spoke at the annual Jackson Hole monetary conference, where he laid the groundwork for additional QE, which is good news. However, he did not even mention the idea of a higher inflation target, or an NGDP target. Rather than defend the Fed against the patent failure of its policies, he chose instead to defend it against the counterfactual claim that QE is inflationary.

Thus, Bernanke’s Fed continues its policy of periodically tapping its toe on the accelerator, rather than targeting a desired speed and opening the throttle until it is achieved. Not only that, but by playing around with QE without a target, he is discrediting QE because "it hasn’t worked”. That is analogous to giving a starving patient a bowl of peanuts and then concluding that the peanuts didn’t help because the patient is still starving.

Let’s take a look at the current economic telemetry and see what kind of a job the Fed is doing.

In terms of its 2% inflation target, the CPI has fallen 25% below target and remains at a suboptimal 1.5%.