Just last month we reported that the Federal Reserve Board’s policy statement was almost identical to its previous policy statement. Now the Fed has issued another policy statement – and it’s almost identical to the last one.
Granted, there’s not much to say. The economy has flatlined, the Fed has run out of policy tools and it’s mid-summer … a time when many people spend more time avoiding work than actually working. But this is the Federal Reserve Board we’re talking about – the people who are in charge of our economy, since neither President Obama nor Congress want to do much about it.
“The most notable change,” as Goldman Sachs’ Chief Economist Jan Hatzius wrote, “was the addition of the word ‘some’ in the committee’s description of desired progress in the labor market. Specifically, the June FOMC statement said that it will be appropriate to raise interest rates ‘when it has seen further improvement in the labor market’ (and is reasonably confident that inflation will move back to two percent). Today’s statement said that rate hikes would be appropriate after ‘some further improvement in the labor market.’ ”
So “further” became “some further.”
Goldman Sachs interpreted this to mean that the Federal Open Market Committee (FOMC) “requires a smaller cumulative improvement in labor market slack” before raising interest rates.
Keep in mind that Goldman Sachs employs financial experts, not experts in the English language. They haven’t a clue about what the Fed means when it adds the word “some” to a phrase. What the coupling of the words “some further” tells us is that the Fed should hire someone who can write to edit its policy statements and Goldman Sachs should stick to interpreting financial data, because Mr. Hatzius is just winging it.
Zerohedge recommends that “if you are currently unemployed, discuss what ‘some’ means and you may soon have a job.”
In the interest of doing our part in promoting full employment, we’ll note that the American Heritage Dictionary defines “some” as “an unspecified number or quantity.” “Further” means “more distant in time or space.” So the Fed statement means, “We’re not going to tell you when we’re going to raise interest rates, except to say that we’re not ready to do so now.”
Of course, there’s a reason that Fed policy statements are as telling as a Bill Belichick press conference. Any real information is subject to misinterpretation. If the Fed was straightforward and honest about its plans, it could cause the equivalent of another “taper tantrum.” When former Fed Chair Ben Bernanke announced the obvious – that the Fed would “taper” its bond purchases in the not-too-distant future – the markets went a little nuts. The current Fed chair would like to prevent another tantrum.
Making Stuff Up
Of course, we think the real reason the Fed issues the same policy statement month after month is just plain laziness.
Think about it. The FOMC gets together, as it must, even during the summer. The members talk, pontificate, argue and presumably eat well. Then, because media know they’re meeting, they have to issue a policy statement. The policy statement has to be written at the end of the meeting, so it can tell the American public what happened during the meeting. By that point, Fed members are anxious to book it back home to their summer homes in the Hamptons (or wherever they happen to have summer homes).
It’s unlikely that everyone on the FOMC can ever agree on anything, except for the need to not spook investors by actually saying something real, so they review the most recent policy statement, change a few words and call it a day.
If you disagree, consider the other changes to the Fed policy statement, as noted by Mr. Hatzius:
“(T)he committee upgraded its description of activity in the housing market (‘additional improvement’ vs. ‘some improvement’), but left its characterization of consumer spending unchanged (‘has been moderate’). A reference to stabilizing energy prices was removed. The statement also revised the discussion of utilization in the labor market. Previously the statement said underutilization ‘diminished somewhat’ (implicitly over the intermeeting period). Today’s statement said that underutilization ‘diminished since early this year’.”
No one who’s not a member of the FOMC – including Mr. Hatzius – really knows what happens at those meetings and the FOMC likes it that way, so it issues policy statements that say nothing. Nothing is revealed, but analysts, economists and journalists are being paid to report what happened, so they make stuff up.
If you want deeper meaning, forget the Fed’s policy statements and go read some haiku.