“When I use a word, it means just what I choose it to mean — neither more nor less.”
Lewis Carroll, Through the Looking Glass
The word for today is “considerable,” as in interest rates will remain low for “a considerable time.”
How long is “a considerable time?”
Long enough, apparently, for investors, who boosted the stock market to yet another new record this week, after Federal Reserve Board Chair Janet Yellen announced that the Fed would keep interest rates near historic lows for “a considerable time.” The Dow Jones Industrial Average crossed 17,200 for the first time ever, closing at a new high of 17,157.
Apparently, investors are like kittens, because, as Alice notes, “whatever you say to them, they always purr.”
CNN Money interprets, with certainty, that “considerable” means summer 2015 “at the earliest.” Yet The Wall Street Journal, referring to the policy statement, admitted, “we have no idea what it says about the future of monetary policy. We doubt even Fed Chair Janet Yellen knows.”
“Better say nothing at all. Language is worth a thousand pounds a word!”
Lewis Carroll, Through the Looking Glass
Having read the policy statement, we conclude that it means whatever you want it to mean, as it contains more hedges than the Palace of Versailles. Consider this single sentence …
“The Committee continues to anticipate (hedge 1), based on its assessment of these factors (hedge 2), that it likely will be appropriate (hedge 3) to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal (hedge 4), and provided that (hedge 5) longer-term inflation expectations remain well anchored.”
“You may call it ‘nonsense’ if you like,” she said, “but I’ve heard nonsense, compared with which that would be as sensible as a dictionary!” Lewis Carroll, Through the Looking Glass
The policy statement is nothing if not balanced. For every positive, there’s a negative; for every action, there’s a reaction; for every yin, there’s a yang.
For example, the statement seems to indicate that the Fed will be continuing its asset purchases, because, on the one hand …
“Beginning in October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $10 billion per month rather than $15 billion per month.”
However, on the other hand …
“If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will end its current program of asset purchases at its next meeting.”
However … “asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.”
So, we can conclude with certainty that the Fed will either continue to purchase assets or stop purchasing assets after October.
“Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Lewis Carroll, Through the Looking Glass
Then there is this …
On the one hand … “labor market conditions improved somewhat further,” but, on the other hand … “the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources.”
On the one hand … “Household spending appears to be rising moderately and business fixed investment is advancing,” but, on the other hand, “the recovery in the housing sector remains slow.”
On the one hand, “Inflation has been running below the Committee’s longer-run objective,” but, on the other hand, “Longer-term inflation expectations have remained stable.”
On the one hand, “Fiscal policy is restraining economic growth,” but on the other hand, “the extent of restraint is diminishing.”
“Then it doesn’t matter which way you walk…-so long as I get somewhere.”
Lewis Carroll, Through the Looking Glass
Members of the Fed voted in favor of the policy action, whatever action that might be, but some pundits noted that two members voted against it.
“President (Charles I.) Plosser objected to the guidance indicating that it likely will be appropriate to maintain the current target range for the federal funds rate for ‘a considerable time after the asset purchase program ends,’ because such language is time dependent and does not reflect the considerable economic progress that has been made toward the Committee’s goals.”
So “considerable time” is too “time dependent.” With logic like that, President Plosser could chair the Fed someday.