FOMC
Here is the quick story: recovery continues (albeit more slowly than we thought), jobs still stink, QE2 will end on time, we’re not thinking about QE3, we’ll keep reinvesting the cash flows from our portfolio, our forecasts for growth are now lower, we expect things to pick up in coming quarters, and rates will remain exceptionally low for…wait for it…here it comes…you can guess it…an extended period of time. If you don’t have a lot of time you can go back to work after reading this first paragraph…you now have what you need to know about today’s meeting.
Extended Period
Bernanke has been asked in the past what “Extended Period” means. It came up again today and he repeated his earlier thought that the phrase means “at least two or three meetings…but depending on the data it could be considerably more.”
On the surface his answer sounds pretty good…”extended period” equals two or three meetings. There are eight meeting per year so “two or three meetings” means less than half a year. That math is so easy a caveman could do it. Where it gets complicated is that they have been saying it for almost two and a half years. At some point I have to question what they’re really thinking.
I’m reminded of the scene from the movie “The Princess Bride” where Vizzini (the main villain) is counseled by one of his comedic sidekicks. Every time something bad happens, Vizzini exclaims in his high pitched nasally voice “Inconceivable!”, because in his mind he is so smart that nobody could possibly outwit him. After this happens five or six times, his sword-fighter Inigo Montoya (one of his comedic underlings) approaches him and says to him in his Spanish accent “Señor, you keep on using this word…I do not think it means what you think it means.” This scene sums up where I am with the Feds “extended period” language. If you’re telling me that “extended period” means two or three meetings…but here we are two and a half years later and they’re still using it…I don’t think it means what they think it means.
The phrase “extended period” is beginning to take on the connotation “we have no earthly idea when we’ll be able to raise rates. I understand that they can’t come right out and say in explicit terms that they’ve no earthly idea when things will get better…maybe I’m just wanting a bit of variety in the way they give me the news. After all variety is the spice of life…but the Fed keeps giving me the same bland phrasing every six weeks.
I’ve got half a mind to go home and watch “The Princess Bride” tonight, but last night during our wrestling match the dog knocked my beer out of my hand and I don’t think either one of us are allowed back in the living room for “an extended period”.
Steve Scaramastro, SVP
800-311-0707
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