The Fed Speaks: Didn’t He Say the Same Thing Last Month?

By , 9 August, 2010, No Comment

Day trading today was like watching a nail rust. I find that amazing, too. The Fed has been saying the same thing for the last three months and there have been no substantive changes in the economy. They can’t lower rates, as the Fed Funds rate is already zero. So that rules out any earthshaking rate changes, and they can’t raise rates because the economy continues to, at best, stagger like a drunken sailor.

Just the same, the market waited with eager anticipation to hear what Mr. Bernanke would say. Imagine my astonishment when he said, well, he said the same things he has been saying for the last three months. The fed is going to continue quantitative easing (which is the latest phrase in a long list of Fed Speak anachronisms) and they may or may not buy some bonds to accomplish this goal. The Fed chairman did not see any immediate relief from the recession-like conditions we are experiencing. I am certainly glad we are out of the recession, and now just experiencing recession-like conditions. I would appreciate it if somebody would clarify the difference between a recession and recession-like conditions.

But the most interesting consequence of all this Federal Reserve nonsense is in the pall that falls over the stock market as it waits in eager anticipation for the utterances of the Fed chairman. Did they think he was going to say something new? To be sure, the Fed is nearly out of options for managing our monetary system. They can’t move interest rates because they have run out of room: they have a big gun, but no bullets.

And that’s what has me scratching my head. Why all this trepidation every time the Fed meets? They are, essentially, out of options to manage the economy and it’s not like you can count on them to spell out, in real terms, how damaged our economy has become. No, that would have people running to the bank’s like lemmings in a desperate attempt to withdraw whatever money they could get their hands on. So we listen to our Fed chairman spew nearly indecipherable musings of on the esoteric economic theories and machinations the Fed is currently employing to make everything “all better.”

So the market went sideways for a good portion of the day as we waited for the Fed chairman’s proclamations: and when the earthshaking proclamations were issued the market resumed its normal activity. And you know what is really crazy? We will do the same thing next time the Fed meets. Even worse, nothing will be changed and we will ask ourselves, “didn’t he say that last month?”

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