The Fed’s True Love: He Tapers Me, He Tapers Me Not

They were doing so well, or at least not quite as bad as throughout the prior several decades. Through this year’s 5% CPI, Federal Reserve policymakers stuck to their gut, not their heart. Transitory factors. Right call (as we’ll see in a minute).

That won’t be their mistake. On the contrary, these Economists (central bankers are all Economists nowadays, and the few who aren’t have only worked for them) continue to fall head over heels in love with the unemployment rate. Despite missing so badly the last time, just a few years ago, here they are ready to commit to their jilted love once more.

Not long ago, so unnerved had policymakers gotten about the unemployment rate’s false signal the FOMC initiated an 18-month “exhaustive” examination of the US economy, its inflation “puzzle”, and the unemployment rate’s role in it. What they found was – quite predictable if you aren’t an Economist – how the object of so much official affection had treated them so poorly.

They finally broke up in August of 2020 when officials discovered the unemployment rate was cheating on them; or cheating them.

When the Federal Reserve’s Grand Strategy Review was completed, the break up, you had to read between the lines a little and translate their academic econometric gibberish into plain English, but it didn’t take much effort:

According to [the UE rate] over the last several years, going back to 2015, believe it or not, back when this main labor market ratio first tumbled underneath what had been calculated as “full employment”, the unemployment rate has totally confounded monetary policymakers. At every turn, year after year, they judged its decline as consistent with the deviation from the maximum I just described above; the good deviation, the inflationary kind.

Yet, never once an inflationary burst nor the more important acceleration in growth we call a recovery. Because those things didn’t happen, the unemployment rate could only have been false. Yet, denial always persisted if for no other reason than CYA and convenience.

It sure seems like, and it is heavily implied (because they’ll never just come out and state this) here, these charlatans have finally acknowledged how they’ve been misleading themselves, and you, for more than a decade about the real state of the labor market therefore the overall economy.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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