The FOMC Policy Statement And Kabuki Theatre

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The FOMC statement and Powell’s presser is being marketed as “more hawkish.” But I do not see remotely the appearance of a “more hawkish” tilt, let alone any substance to back that assertion.

The Fed may or may not raise the Fed funds rate one-half of one percent in 2023…50 basis points – maybe. This would be dependent on more economic improvement and “the Committee’s assessment of maximum employment and price stability goals.”

Please define “maximum employment.”  Prices are already unstable and will become more unstable.  The lack of definition for the events that would trigger rate hikes is intentional. It removes any degree of accountability and it allows the Fed to move the “goal posts” capriciously.

Furthermore, “the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.”

Let’s assume the printing stops January 2023 – an egregiously beneficent assumption. That means 18 more months of “at least” $120 billion per month of printing. There is zero threat of  “taper” in that policy statement. None. In fact, the CNBCs and Wall St Journals of the world completely ignore the “at least” phrase.  Semantically it means there is no limit to how much the Fed can or will print each month. But at the bare minimum the Fed will print another $2.16 trillion over the next 18 months – or an amount that is 10% of the U.S. nominal GDP (substantially more than 10% of the real, inflation-adjusted GDP).

Look at the Nasdaq today. It does not see the FOMC policy statement as “more hawkish.” I’m wondering if the entire Kabuki Theatre production is being staged to torpedo the price of gold derivatives and thereby help the bullion banks cover a large portion of their unallocated gold liabilities (gold derivatives) ahead of the implementation of the Net Stability Funding Ratio provision of Basel 3.

- Dave Kranzler

Investment Research Dynamics