Little Meat for Kremlinologists
The central planners have struck again, and surprised no-one, as the outcome of the most recent FOMC meeting was well telegraphed in advance. As the trusty WSJ FOMC statement tracker reveals, we are once again in a phase when very little in the statement is changed from month to month.
Apart from the widely expected announcement of additional ‘QE tapering’, the only difference to the last statement could be found in the first paragraph (the altered sentences are highlighted below):
“Information received since the Federal Open Market Committee met in March indicates that growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending appears to be rising more quickly. Business fixed investment edged down, while the recovery in the housing sector remained slow.â€
Aren’t weather conditions always ‘adverse’ in the winter? The mixture of increasing consumption and falling business investment could be an early warning sign of an economic upset. Let us not forget, relative prices and the economy’s production structure have once again been severely distorted by monetary pumping, arguably more than ever. In the past several years, the boom-bust cycles seem to have become ever more extreme.
At some point these distortions will once again come home to roost. Once a boom is in its latter stages, it becomes increasingly difficult to sustain bubble activities, and they tend to require ever larger doses of credit and money creation to continue. Any voluntary reduction in monetary pumping will eventually unmask the fact that these activities would have been unprofitable under free market conditions and that they have consumed wealth rather than creating it.
