What Yellen Should Have Said

The question reporters should be asking now is, what did the Federal Reserve Board’s Open Market Committee do for two days last week?

The statement it issued based on its meeting is a rehash of its last statement, which itself was not worth repeating.  Check the link from The Wall Street Journal, which you can use to compare the two most recent statements (as well as others), and you’ll see that the Fed mailed it in this time.


These folks are managing our economy.  The fate of the world is in their hands.  And the best they can do is come up with an update to a previous statement.  No wonder the economy has practically flatlined throughout the current “recovery.”

It’s worth adding, though, that the Fed’s Seinfeld approach of having meetings about nothing may be better for the economy and for the American taxpayer than the previous chair’s pronouncements about Operation Twist and unlimited QE programs.

The latest Fed statement starts with this: “Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat.”  Really?  What does “has moderated somewhat” mean?  And where is the “information” received from?  NSA wiretaps?  Drones?  Ben Bernanke’s blog?

The Fed did admit that its previous economic growth predictions were a tad too rosy, but that’s not news anymore.  The world’s greatest economists are habitually as wrong about the rate of growth as they are about the cure for our current economic doldrums.

The Fed now predicts that the economy will grow at a rate of only 1.8% to 2% this year, which is down from a forecast of 2.3% to 2.7% in March, which was down from 2.6% to 3% in December.  Of course, the latest Fed estimates may need to be notched down yet again, given that revised estimates for the first quarter show that the economy shrank by 0.7%.

“The Fed has consistently estimated that its near-zero interest rate policy and bond buying would produce faster growth,” The Wall Street Journal reported.  “Yet each year yields disappointment.  Then the Fed uses the reality of slower growth to explain why it needs to continue the policies that haven’t produced faster growth.  The Fed has been in a perpetual policy feedback loop.” 

What the Fed Should Have Said

Of course, the Fed says little, but makes it sound important by, for example, referring to a “central tendency” for annual GDP growth, rather than actual GDP growth.

It’s time for the Fed to take a more honest approach.  Here’s what the Fed could have said:

“The Fed’s mandate is to foster maximum employment and price stability.  As we’ve seen in recent years, it’s ludicrous to think that monetary policy can achieve those goals.

“The Fed is capable of lowering interest rates.  It can artificially boost asset prices.  It can weaken or strengthen the dollar.  But it can’t control employment and its policies in recent years have had precious little impact on price stability.

“It’s the job of President Obama and the U.S. Congress to manage the economy.  It’s a job that they have inappropriately left to the Fed since 2008.

“The Fed doesn’t control federal tax rates.  America still has the highest corporate tax rate in the world.  When American corporations earn money aboard, they are taxed on it by foreign countries and are taxed again if they try to bring that money back to the U.S.  As a result, many companies that were formed in America have been moving their headquarters abroad.

“The Fed doesn’t control legislation, either.  In recent years, American businesses have had to adjust to the Affordable Care Act, the Dodd-Frank Act, the Foreign Account Tax Compliance Act (FATCA) and numerous other new rules.  Congress has frequently been accused of doing nothing.  Yet the previous Congress broke new records with the volume of regulations passed, adding tens of thousands of pages of new regulations to the Federal Register each year.

“In addition, the U.S. Environmental Protection Agency and other bureaucracies have reinterpreted old rules, which will make it more difficult for businesses to expand and could even challenge the reliability of our electric grid.

“The Fed doesn’t control the federal budget or the federal deficit, which exceeds $18 trillion.  That doesn’t include nearly $100 trillion in unfunded liabilities for Social Security and Medicare.

“The Fed doesn’t negotiate trade agreements and cannot, for example, lift the embargo on U.S. oil exports.

“The Fed doesn’t control immigration policy, either.  Each year, the best and brightest students from throughout the world come to the U.S. to earn degrees in business, engineering, information technology and other important subjects.  When they graduate, they’re forced to return home after a short time.  Congress could create more opportunities for entrepreneurial students to stay in the U.S.  President Obama lifted the embargo on Cuba by executive order.  Why can’t he issue an executive order to allow foreign entrepreneurs to establish their businesses in the United States?

“These issues are beyond the scope of what the Fed can do.  We will no longer pretend that easy money policy is enough to restore economic vitality to the U.S. economy.

“Whether or not you agree with the Fed’s actions in recent years, we tried to do our job.  Now it’s up to President Obama and the U.S. Congress to do their job.”

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