Minutes from the Federal Open Market Committee’s last meeting showed that several members were interested in additional monetary accommodation, leading to expectations that the Fed will enact quantitative easing at their next assembly in August.
But the real shocking part of the minutes come in this discussion of inflation:
Looking beyond the temporary effects on inflation of this year’s fluctuations in oil and other commodity prices, almost all participants continued to anticipate that inflation over the medium-term would run at or below the 2 percent rate that the Committee judges to be most consistent with its statutory mandate.
What this means, at the most basic level, is that the Fed believes it will miss its target for inflation for the next several years (the medium-term). Below 2% is NOT consistent with the statutory mandate. That’s a miss. This is the central problem with our central banks, which have turned their inflation target into a ceiling. An inflation rate of 1.5% is functionally the same as 2.5%. But the Fed sees one as consistent with the mandate and the other as a failure. This restricts economic recovery. Matt Yglesias makes the point that increased economic activity, with millions of people going to work and purchasing more goods, would necessarily push inflation up a bit. The Fed doesn’t want that to happen. They are consigning the country to this current level of economic ruin.
Therefore, we can assume that Fed action taken in August will be muted and incomplete and not nearly enough to grow the economy. And that will be by design. The Fed doesn’t want growth. That might impact the only mandate they care about.
The other thing we can take from this report of Fed minutes is that the Fed has a horrible forecasting record over the last three years. They constantly surprise themselves with the poor economic record, like clockwork, when they create the conditions to constrain economic recovery. I don’t know how you can continue to believe in this set of economic policymakers when they consistently exhibit surprise at their own failure.