Is FED's credibility eroding?

For many years, it kept saying that US economy is strong and they were going to normalize (increase) interest rates.

Now when they said 4 hikes in 2016, they are backtracking on that as well.

They said they track CPI and jobs data as indicators of the economic strength. But when these indicators are strong as well, they don’t want to increase rates.

Doesn’t this mean that economy is not strong, that they are peddling lies and all their indicators mean nothing?

truthSeeker2, I must admit your posts on financial matters confuse me. What do you think the real FRB agenda is, if it differs from their charter? You do understand that in this context an inflation rate near 0% is NOT a sign of strength, right?

Business and consumer confidence is a prerequisite for prosperity. For that reason, opinion-makers have good reason to make optimistic predictions. Is that what you mean by the Fed “lying”?

  1. My point is the economy was never strong. It was propped up by QEs , increasing debt -particularly govt. debt (over 100% of GDP now, increased by 10 trillion iirc in Obama era alone) and by near zero interest rates
    So, as soon as u take away the stimulus, the illusion of growth disappear. ur manufacturing, services PMIs start to point towards recession.

  2. CPI is near zero but core CPI is 2%.

  3. Jobless rate is 4.9%. Doesn’t capture people who have stopped looking out for these low paying temporary jobs.

Specifically on point 1, don’t u feel the FED is fooling everyone coz it knows it can’t raise rates.

  • Yes, it means the economy is not very strong.
  • The indicators mean what they mean. How to properly interpret the indicators in a current context is another matter.
  • No they are not peddling lies. All they can do is look at the data and take a guess as to what might occur in the future, based on current trends. But there’s no telling if current trends will continue, and if their forecasts will come true…
  • Which is why they meet regularly to go over the latest data, and then make decisions based off the current data.

As an example, take 2013-2014. GDP growth was starting to pick up, the unemployment rate was declining, inflation looked like it was hovering around 2%, etc… indicators that seemed to loosely match “modest economic improvement” in times past. 2015 rolls along and what happens? GDP growth is becomes lest robust, unemployment rate declines, and inflation goes to approximately 0, etc… Indicators that seem to loosely match with “stagnant economy and sluggish growth”. So, given the new data, they decide not to raise interest rates. They’re not “fooling everyone” because they have no way of knowing for sure, in advance, what they need to do until they actually sit down and review the data.

There’s always pressure for the Fed to make predictions about the future, but economic forecasting is very imprecise (to put it mildly…). There are just too many factors that need to be considered, and there are too many unknowns. I personally wish they would just not bother to make public statements at all about long-term forecasts, but I understand why they feel obligated to do it.

Don’t argue with him, he’s your garden-variety tinfoil-hat conspiracist who doesn’t understand anything about economics and wants to go back to the gold standard, IIRC.

You might be worthy of better replies if you could even correctly spell the name of the agency you’re attacking. Bonus points for making sense and or including actual facts in your attack.

No sir, you do not remember correctly . I don’t want to go back to gold standard.

Read point #1 of my last post if you want to understand what I am trying to communicate.

The US is also going the Japan way where the public debt has now increased to229% of GDP. Growth is not to be found.

Growth may be anemic but it isn’t an “illusion.” Employment is up. The U.S. economy, however tenuous, may be the one thing staving off worldwide recession.

But I don’t understand your view of FRB policy. You seem to feel some anger against them. What do you think they should be doing? Your post makes it sound like you think they have some covert agenda. (If you just want to speculate on the near-term economic future, why do you need to phrase your question as anger/blame against the Fed?)

If your main point is just that the Fed’s tiny interest rate hike was premature, please note they have a strong and understandable motive to try to restore some normalcy to the monetary situation.

Nothing is pointing to recession. If you listened to Yellen, the concern is not with the US economy but the global economy. Notice that the deficit has fallen significantly over the last four years. Yes we added debt in the face of the recession - but the result of that has been stronger growth than in the economies that did what you seem to be advocating.

Do you think this is high? Do you understand why 2% inflation is good?

The important comparison is with the same index 8 years ago. Do you deny that it has fallen in half? Take a look at other unemployment indices. Do any not reflect an improving economy?

The Fed is being cautious, as it should be. Is there something wrong with adjusting strategy based on changing conditions?

What FED, governments , IMF should be doing :

  1. Stop lying. Acknowledge facts tht there’s no growth to be had (if u don’t count the illusion of growth by increasing public debt) unless there’s very very large scale immigration . demographics are terrible. Not enough babies, older people increasing, younger people reducing. So, economic activity reducing. Tech. and automation makes many jobs redundant as well.

  2. Work on Common global currency. Doesn’t have to be backed by anything (gold etc) I guess. Govts will have to dilute some of their powers for this to work.

Deficit number is a useless number when your long term debt is rising every year. Don’t even look at the deficit number please.

I think there’s some validity in your perspective, but also some faults. The relatively low ratio of young workers to retirees is a problem but, partly due to automation, we don’t even have jobs for all the young people we do have. Nourishing their job prospects should be a high priority and Fed policies like QE are a means() to that end.* (Growing via debt may be problematic but the growth isn’t an “illusion” – it would help if you didn’t misuse words.) (* - Much better means are available, but impossible in the present U.S. political environment.)

Some of the problems you identify in #1 may be real, but they have nothing to do with FRB policy. Your insistence on making the FRB a scapegoat is confusing and detracts from whatever validity your arguments may have.

As for global currency, the Euro is now blamed for some of Europe’s economic woe. ASEAN plans a close union, but I’m not hopeful about that. “Common global currency” would be very premature.

If there was a deficit of $1, the debt would still be rising. Would that still be a horrible thing?

You do know that long term debt is increasing because we have a current deficit, right?

ETA: @ truthseeker.

Would you tell the person who got his job through the stimulus program or from business expansion partially caused by QE that his job and income are an illusion?

Do you understand the root cause of the crisis in the Eurozone? Hint - it is not Greece being irresponsible.

ETA: @OP’s various posts …

Money is meaningless. It’s economic value that matters.

You assert that the problem we have is insufficient growth in real economic activity. Assuming *arguendo *that’s true, then whether we have one world currency or 100 currencies or 10,000 currencies doesn’t alter that whit one.

Your proposed solution does nothing to fix your proposed problem.

And your proposed problem is alarmist bunk cut-and-pasted from CT or Cassandra websites selling doom and gloom.

They are wrong. End of story. You are wrong to be following them and swallowing then regurgitating their slop. End of story.

I’ve reread your posts, and I still don’t understand what you’re trying to communicate. Your thread title and parts of the quote seem to imply you believe the Fed is somehow “lying” to people by claiming the economy is strong, even though the data suggests the US economy is experiencing something akin to “sluggish growth”. They didn’t do any such thing; they merely looked at current data, and then made policy decisions based on that data. A couple of years ago, the data showed that the economy was improving, so they started taking steps to adapt monetary policy to that situation. Last year, the data showed that the economic growth was slowing and at risk, so they adapted policy for that reality. I don’t see how they’re lying to anyone; they’re just doing their jobs. They crunch data, and then set policy to maximize employment, control inflation, and moderate long-term interest rates to the limited degrees to which they can influence these things.

The fact that they also make some economic forecasts as part of their jobs hardly constitutes “lying” when the forecasts turn out not to be that accurate. The members of FRB are just economists, not omniscient gods. I mean, if the weatherman gets tomorrow’s weather forecast wrong, do you accuse the weatherman of being a liar? If so, you have a very odd definition of lying, it seems to me. Just because they’re wrong sometimes, doesn’t mean they aren’t acting in good faith.

There is real growth to be had, and the US had some in 2015. Not a whole lot (3%-3.5%), admittedly, but some. 2013-2014 was better. QE and the special government programs largely ended at the end of 2013; the Federal budget returned to our (unfortunate) usual levels of defecit in 2014, and the monetary base stopped growing at around the same time.

Common currency is not an unqualified blessing and carries some very real downsides. See the current problems in France, Italy, and Spain and how the Euro is contributing to their problems. “Implement a common global currency” is not just going to magically spur growth.

My explanation is forever insufficient for you it seems.

I guess I mentioned that growth (real economic activity) could be increased in the US by very large scale immigration.

These immigrants will be coming from some part of this world, right? Means there’s scope for growth in the world. but no scope of growth in the US without immigration or without increasing the debt to GDP ratio. Increasing debt would be a never ending cycle just as in Japan. If you want to look into the future, just look at Japanese economy. For starters, I think the richer nations whose working age populations have peaked should altogether stop using the term GDP ‘growth’.

If you want to properly assign value to assets or to properly quantify growth as well, a common currency will be useful.

I don’t go to any of the doom and gloom website. It seems you are sold on FED’s and government’s lies.

Things happen with a lag effect. If they don’t continue to increase debt to GDP ratio and do continue on their path of normalisation (rate hikes), there will be recession I promise.

Based on what data and what economic models? You’ll forgive me if I don’t just take your promise over the opinions of respected, albeit highly flawed, economists who provide ample hard data to back up their opinions.

Projected US Federal budgets are currently showing deficits of $500 billion annually over the next several years. And yes, of course, if you simply slashed $500 billion from the budget, growth would suffer and you’d hurt a lot of people in the process. But would that be because the $500 billion in deficit was the only thing propping up the economy? (“US Economic Growth is an illusion”). Or would it be because you sent a huge shock into the system by, suddenly and without-warning, completely trashing the stability of system without giving people time to slowly adjust first? Or would something else happen entirely?

If you try to raise interest rates, yes, history shows you reduce inflation and can harm growth. So yes, you’re likely correct that current rate hikes will hurt growth, based on current understanding. So then the near-term course of action is clear, which is what the “lying” Fed is doing: “Don’t raise rates until you have solid growth”, since raising rates at present does harm while providing somewhat fewer benefits.

You keep saying that any current economic growth is really just an illusion. And perhaps it is. The current prevailing opinion is that growth is there, but very sluggish, and there are “significant headwinds” to more solid growth. This is backed by the reported data, but I suppose the prevailing opinion could be wrong. But you fail to provide any hard data to support your claims which makes your claims worthless, regardless of whether or not they are true.

And to circle back, I fail to see how any of this demonstrates that the Fed is deliberately lying to people. They’re calling it like they see it, based on the data they and everyone else has in front of them.