Fed again chose not to cut rates.
I mean how many times we have had this situation. Not to forget it started way back in 2010 when Bernanke made exit policy really popular. Since then, it has been looking for a gate to exit not able to find one. Some central banks which did find the exit gate (ECB, Riksbank, Norges Bank, RBA, Australia in 2010-11) found the weather really bad outside and forced themselves back in the theatre,
It has been a while this blog has read any of the central bank policy statements. It is just the same old story over and over again. But still the attention and hyoe keeps rising and getting shriller by the day. Infact after many thousands of years when records on Fed are going to be read by then historians they will surely wonder what all this noise was about. They will compare statements after statements to figure why there was so much attention and noise on this FOMC animal. They will be disappointed to find any correlations and wonder what the world was thinking back then. Same for other central banks as well.
So it took quite something to read the FOMC statement which was released last night. Given the noise one just wanted to see what was it all about. The statement just read like those old ones saying we are trying to do so and so for US economy. I mean how little things have changed really.
The problem is actually much bigger. It is not about whether Fed should cut or ease rates. This is just a much smaller question in the scheme of things. A much bigger question is whether we should allow some 10-12 people to determine economic fortunes of the entire world? The same applies to other central banks in their countries as well. Much of history of money and monetary policy is tragedy and recent events are just a continuation of the same.
Jeff Deist of Mises Institute sums up the breaking news:
Perhaps no economic pronouncement in history has been anticipated, discussed, predicted, dissected, and reported like the Federal Reserve’s momentous decision today not to raise interest rates. The outpouring of relief witnessed today by the financial press is nothing short of cathartic. Fear and anxiety, built up over months, is replaced by relief, even euphoria.
This is not to say the hype is unwarranted. On the contrary, the decision to raise interest rates even just 25 basis points would have represented nothing less than the end of an era, as one Bank of American analyst described (courtesy of Zerohedge):
On Wall Street only 2 things matter: interest rates and earnings. Everything else is noise unless it impacts rates and earnings. No one impacts interest rates more than the Fed. So the … rate hike decision is a big deal.
Should the Fed decide to raise interest rates, it will be the first Fed hike since June 29th 2006. In the 110 months that have since past, global central banks have cut interest rates 697 times, central banks have bought $15 trillion of financial assets, zero interest rate policies have been adopted in the US, Europe & Japan. And, following the Great Financial Crisis of 2008, both stocks and corporate bonds have soared to all-time highs thanks in great part to this extraordinary monetary regime.
As noted above, a rate hike with a stroke ends this era.
A stroke indeed. By unelected, unaccountable, anti-market bureaucrats whose identities are completely unknown to virtually all Americans.
After so many years of the “new normal,” we have to be reminded just how extraordinary — and unprecedented — the Fed’s actions since 2008 have been. But does it not occur to bankers, much less the media breathlessly covering stock and bond markets, that these actions have set America on a hopelessly dangerous and unsustainable path? Or that placing so much economic power in the hands of a select few might not end well?
In a digital world, where information increasingly is decentralized and disseminated through multiple channels, it is astonishing to witness the degree to which a tiny group of individuals issues the single most important piece of information in the entire global economy.
By “tiny group” I mean the 10 people who sit on the Fed’s Open Market Committee: 5 Federal Reserve Board Governors (with 2 vacancies), and 5 of the 12 Federal Reserve Bank presidents on a rotating basis.
When the whole world waits with bated breath for the economic pronouncements of 10 people sitting in one room, we might call that central planning. We might accurately call those 10 people elites, since the shoe fits. And when those elites effectively determine the cost of borrowing money across whole economies, we might call that price fixing.
Interest rates are indeed prices, make no mistake about it. They are a critical component of economic calculation, providing instant information to entrepreneurs seeking to deploy capital to its best and highest uses. In a rational world, interest rates reflect the (ever-changing) relative time preferences of both lenders and borrowers.
The tiny group like true monopolists will not let their privileges go that easily. And these are really exclusive privileges who get all worldly pleasures at the cost of world taxpayers with minimal accountability.
So I guess keep waiting for that elusive rate hike as if it will mean something really big..