The Fed Blames the Weather
The Fed continues to taper QE into weakening economic data insisting things will get better with the weather. What if they are wrong?
And Jesus saith unto him, Verily I say unto thee, That this day, even in this night, before the cock crow twice, thou shalt deny me thrice. Mark 14:30 (King James Version)
As the economy continues to stumble, Fed Chairman Yellen and the Fed Presidents concede that the economy was weak in the first quarter of this year (0.1% GDP Growth) but dismissed the poor showing on the weather. As the weather has improved the economy has not, yet the Fed insists that it has. Last week we noted this astonishing and persistent denial of economic reality. The denial continued last week after the release of April’s non farm payroll numbers that showed 806,000 people left the labor force and the Fed and pundits chose instead to focus on the supposed 288,000 jobs “gained”, citing those gains as evidence that the worst of the bad weather was behind us.
What Happens When the Excuses Run Out?
Here is what some of the Fed Presidents and its Chair Janet Yellen are saying about the economic “recovery”:
Chair of the Federal Reserve, Janet Yellen (dove)
Meteorologist Janet Yellen: the new National Weather Lady?
Clearer skies ahead!
While recognizing the poor economic showing of the economy in the first quarter, Ms. Yellen in her recent Congressional testimony forecast “clearer skies ahead,” : “I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather,” “With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter.”
She also warned Congress that “the recent flattening in housing activity could prove more protracted than currently expected”, citing “fresh risk in the housing market.” It appears to Ms. Yellen, that the housing market was influenced adversely by bad weather but perhaps better weather may not help it, thus making a new observation that housing may operate outside the overall economy and weather patterns.
Philadelphia Federal Reserve President, Charles Plosser (hawk)
Housing sales are down? What me, worry?
Earlier this week, Mr. Plosser remarked that he was not worried about the recent dips in pending home sales, mortgage applications, the sales of existing and new homes denying there was a problem in the housing market:
“Just because housing starts are slower or sales are slower, that doesn’t mean the housing market is weak, because that’s not consistent with a continued increase in prices,” he said. “I’m not panicky about the housing market.”
To Plosser, rising home prices are all that matters and are evidence of a housing recovery.
Plosser is a voting member of the Fed’s policy committee this year.
St. Louis Fed President James Bullard (moderate)
Mr Bullard, normally outspoken advocate for caution and a patient review of economic data before making any decisions or interpretations said nothing regarding monetary policy in a speech earlier this week.
Dallas Fed President Richard Fisher (hawk)
The economy is strengthening!
Earlier this month, Mr. Fisher noted that the economy was “getting stronger and moving in the right direction.” Apparently swayed by the recent jobs report that showed 288,000 jobs were created and the unemployment rate fell, Mr. Fisher remarked on Fox News: “The private sector is beginning to hire,” “We’d like to see that continue and, in fact, increase.”
Mr. Fisher has always hated quantitative easing (QE), thought it ineffective and at one time referred to it as “monetary cocaine”. Mr. Fisher’s optimistic comments appear out of character. Perhaps he is playing along with the recovery narrative just to convince the Fed to stop QE.
Mr. Fisher noted that he didn’t expect the Fed to raise interest rates until at least October this year.
Richard Fisher is a voting member of the Fed’s policy committee this year.
Boston Fed President Eric Rosengren (dove)
Last month Mr. Rosengren noted that the unemployment rate “understates the severity of the problem” in the labor market. Mr. Rosengren seems to understand that factors such as the labor participation rate also matter when assessing in the health of the labor market.
Eric Rosengren is not a voting member of the Fed’s policy committee this year.
Why the Fed Denial?
Even though the economy has not improved, the Fed appears to be on a uninterrupted course of tapering and ending QE, clinging to the belief that as the weather improves, so will the economy. What if they are wrong?