Greg Ip, whom I have criticized in the past for being too trusting of government statements and news releases, has the scales removed from his eyes:

Fed pause coming and this time, we mean it — right?

Did Bernanke hint at a pause in rate increases in his Congressional testimony this week? The markets certainly think so, but a reality check might be in order. We checked our coverage of the last seven months and concluded that since the Fed started hinting of a pause, it’s raised rates four times. Here are The Wall Street Journal’s headlines in that period:

Dec. 14: Neutral Point May Be Near As Statement Leaves Room for a Pause in the Increases
Jan. 4: Fed Suggests It’s Close to Ending Run of Rate Rises
Feb. 1: Fed Lifts Rate by Quarter Point, Casts Doubt on More Increases
April 19: Fed Hints Next Rate Increase Could Be the Last for a While
April 28: Bernanke Hints at a Pause in Rate Increases
May 11: Central Bank Cites Worries Of Inflation Amid Growth, But Hints of a Possible Pause
July 20: Dow Surges as Markets Take Fed Chief’s Remarks as Hint Rate Increases Are Near End

To be sure, those were just hints — the Fed never said when, or whether, it would pause, and some of those hints clearly applied to a period beyond the next meeting.

That said, the fact there has been no break in the tightening cycle in spite of all the hints to the contrary serves as a useful reminder that no matter what the Fed says, or what we think it says, circumstances change, and the Fed must act accordingly.

Better watch out, Greg — they’ll brand you a cynic if you keep up that reality based stuff . . .


Fed Reality Check
Washington Wire
WSJ, July 20, 2006, 9:45 am

Category: Federal Reserve, Financial Press

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Fed Reality Check”

  1. Alex Khenkin says:

    Barry, you mean I have to accept the Nasdaq still being 60% off its 6-year old high as a FACT??? I must be turning into a depressing cynical naysayer…
    Small Investor Chronicles

  2. The Hair says:

    We can’t figure what the Fed is doing anymore. I think Bernanke is learning that being the lead policy maker vs. being an academic are two vastly different things.

    What I am most curious about today: What is up with Money Honey’s (Ms. Baritoromo on CNBC) new hairdo? Is it a market indicator?

  3. Bob A says:

    Was I just imagining this or don’t the markets usually fall in the six months after the fed stops raising rates. Charts? Stats? Barry?

  4. V L says:

    The Fed does not know when it will pause. Nobody knows, nobody.

  5. BettinaZ says:

    According to Jim Stack, 9-12 months after the Fed finishes raising rates, the stock market is lower… I believe from where they started, but don’t quote me. Can’t find it in his archives.

  6. muckdog says:

    Aaron Task over on RM noted today that The Bearded One said “Growth doesn’t cause inflation,” but also said from testimony that “moderation (of growth) should help to limit inflation pressures over time.”

    When’s the next 3-martini lunch with Maria?

  7. Sharkie says:

    And a Happy “measured pace” two year anniversary to you as well. Seventeen times overstating the central bank growing more concerned about “inflation” along with “future economic developments” exposes the powerful forces and millions of investors who actually do control interest rates. I don’t know exactly when the fed lost control of rates, somewhere along the way to adding three trillion to the nations debt, but I do know how desperately they will defend the dollar. Because of roaring inflation in commodity prices and a falling dollar, investors are pushing bond prices down and interest rates up, with or without central bank alpha dog. See if this makes any sense out of why Bernanke will go for 18. The threat of foreign selling. Foreign investors own a foolish $2.2 trillion, or 55%, of all treasuries not in US government hands. Does this sound like a country still in control of its own destiny? We have hocked our country to foreign investors and with a phone call; they can wreak havoc on US markets. How about rising rates overseas? Add another incentive to dump US bonds and bring their investments home. And certainly you have heard of inflation feeding inflation. This is what’s so ugly about rising energy prices. It gives corporations a green light to jack up prices to what ever they can get away with. So again, Happy Anniversary Federal Reserve, and with any luck Americans will start to view you for what you truly have become.

  8. fred hooper says:

    BettinaZ FYI:

    It doesn’t really matter what the Fed does. The damage is done, and they have little room to push rates higher without forcing a hard real estate crash in lieu of a drawn-out slow crash that is currently underway.

  9. Guys,

    Use the Google search function, and type in a phrase like “Markets after Fed stops” (no quotes)

    You get all the posts on the subject
    Big Picture Google Search: Markets after Fed stops

  10. cm says:

    Looks like we are witnessing some “volatility” and “chaos” (in the chaos-theoretic sense) these days. I seriously believe while there are “inside” shakers & movers who can affect certain things, or perhaps even everything for a short period, the systemic complexities and feedback loops are such that nobody knows what happens a few days from now.

  11. jm says:

    Well, that S&P 500 table pretty much sums it up. Thanks for the link Barry. Sort of funny to think back on all the “one and done” rallies we’ve had. And when they finally stop…the market goes down.

  12. Alex Khenkin says:

    “I don’t know exactly when the fed lost control of rates[...]” – Sharkie
    I do know. When Mr. G. removed any element of surprise via his “measured pace” and the like pronouncements. Sorry about tooting my little horn here, I just happened to have written about it a year ago: ” Of Greenspan Conundrums, Literacy, and Helpless FED”.
    Small Investor Chronicles

  13. bryan says:

    I still believe Bernanke is a closet trader. You have listed statements wherein all are suggesting the Fed will pause. Why so? I think it is because the market during those times is falling and he is trying to quell the downward momentum. As a trader, he knows that the best that the market can do right now is go on consolidation, that is, kill the momentum. No momentum kills investors interest. No interest means no participants. No participants means no market collapse.

  14. Sammy20 says:

    I loved Steve Moore’s reasoning on Kudlow tonight for why we should not get rid of the penny…..because “that would mean inflation has won”….ummm, doesn’t the fact that the penny is now more costly to produce than its monetary value already establish this as fact and not stopping production for stubborness’ sake just further support the fact that inflation is far worse than is being reported???

  15. brion says:

    hmm…same reasoning we weren’t supposed to be bailing on Iraq…”Cause otherwise them terrowists would think they won see?”

  16. Lord says:

    The Fed and the economy are having a showdown. Each wants the other to pause first.

  17. Franco says:

    I stand behind my prediction of a 6% fed funds rate. Do not pass GO, do not collect $200.