Pronouncement from on High reviewed by a Realist
Dan Norcini
Following is the official statement from the FOMC in regards to their August 10, 2004 meeting to discuss U.S. monetary policy with some interpretation immediately below.
Release Date: August 10, 2004
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 1-1/2 percent.
The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. In recent months, output growth has moderated and the pace of improvement in labor market conditions has slowed. This softness likely owes importantly to the substantial rise in energy prices. The economy nevertheless appears poised to resume a stronger pace of expansion going forward. Inflation has been somewhat elevated this year, though a portion of the rise in prices seems to reflect transitory factors.
The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal. With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Thomas M. Hoenig; Donald L. Kohn; Cathy E. Minehan; Mark W. Olson; Sandra Pianalto; and William Poole.
In a related action, the Board of Governors unanimously approved a 25 basis point increase in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
Dan's Commentary:
So, the divine ones have spoken at long last. We mere mortals have indeed been privileged to have heard from these exalted messengers from on high. Let us rejoice that the gods have come down to earth from their lofty thrones and graced us with their presence. Now that the hidden mysteries of the universe have been revealed and the mists of human ignorance have been dispelled, we may revel in our blessed enlightenment.
Disclaimer: All of the previous paragraph is pure bunkum and is not intended to be actually swallowed expect by the gullible and unsuspecting among us.
Unfortunately, such is the incredible gullibility of the general public these days that there still remains multitudes of investors who actually give credibility to these regular pontifications from the FOMC.
Let me provide a similar announcement to illustrate the absurdity of what we were treated to this afternoon at 1:15 PM CST:
From the Federal Reserve Bureau of Meteorology:
The weather pattern thus far this year has been for the most part fairly pleasant. Sunny days with blue skies have predominated and for that we take most, if not all of the credit due to our wise and skillful ability to manipulate the jet stream. Recently however, there seems to be a return to an unfortunate pattern of grey skies and clouds that has resulted in diminished fun and games for all. Not to worry however, we believe that these grey skies and clouds will disappear fairly soon. As a matter of fact, we can say two things with exact certitude - the sun will definitely shine again at some point and that if the sky is not grey, it will indeed be blue. We think we know when this will happen but cannot say so with absolute confidence since the forecast could go either way right now. However we are relying on our superior knowledge and abilities to manipulate the jet stream as we stand ready to move it whatever way is necessary to produce the weather pattern that will please the most people.
In the meantime, the transitory influences that have produced the grey skies, most notably the category 5 hurricane that we can clearly see offshore (the same one we have told you that does exist), is really more of an inconvenience and we expect it to go away without much fuss. Since we are not concerned with it, neither should you be.
Until the next time we gather to produce another erudite announcement, we bid you peasants a fond farewell and trust that you will rest a bit more securely in the knowledge that we are looking out for you and have your best interests at heart. Chumps!
Signed:
Your beneficent masters at the Fed,
Alan, Tim, Ben, Susan, Roger, Ed, Tom, Don, Cathy, Mark, Sandy, Bill
The simple truth is the Fed was forced into hiking the 25 basis points to save face since Greenspan cannot well afford to look incompetent after boxing himself into a corner with his irrational prognostications a mere few weeks ago. Three questions I have for Mr. Greenspan since he stated that a "portion of the rise in prices reflects transitory factors".
One - define the word "transitory". Is it six months, one year, two years, etc.? How long will high crude prices be here to stay and what conditions can he see that the rest of us cannot see that will bring crude prices back down to within former price levels? Is it increased production? Is it reduced demand? Which is it? Please clarify and enlighten us O wise one. Last I heard the some of the oil majors did not want any more Saudi HEAVY crude.
Oh, by the way Alan, about that offshore hurricane -
Crude oil prices hit a peak above $45 - the highest price in 21 years while levels of indebtedness have gone parabolic.
Two - if "a portion" of the rise in prices reflects transitory factors, what portion is it - 20%, 30%, 50%, 75%? Clarification would be most beneficial to us dolts. Along this same line Alan, should we not simply ignore this transitory rise in prices since according to the geniuses at the Department of Labor, it is only the "core" rise in the CPI that need concern us. After all, food and energy costs are too volatile to include in the actual calculation of the rate of inflation and thus should be excluded. Now you are telling us that "inflation has been somewhat elevated this year" and that part of that elevation is due to rising energy prices. So are you saying that we now should include the price of energy in our CPI calculations? If so, why not go ahead and just put the food and energy cost component back in the CPI "core"? It occurs to me that you will include the cost of energy in your assessments whenever it is favorable to what you are arguing and exclude it whenever it is not favorable. That's what I have always loved about you the most - your consistency.
Three - what are the other factors outside of the "portion" that are responsible for this rise in prices? Could one of those happen to be the Fed's systematic debasement of the U.S. Dollar through its reckless monetary policy and its Bernanke Money Machine?
You know full well Mr. Greenspan that the dollar is a disaster waiting to happen. How long do you intend to continue to run this con game? I suspect that you are a secret admirer of the late George C. Scott in his famous movie role as the conniving Flim Flam Man, Mordecai Jones, and really have had a life long fantasy to act out the role. I nominate you for an Academy Award sir, you are marvelous.
Dan Norcini
August 11, 2004
Dan is a professional off-the-floor commodity trader residing in Texas and can be reached at dnorcini@earthlink.net with comments.
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