My second favorite Bad Cop says…
“We must back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy,” Plosser told a panel in Paris. “Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts.”
Especially since they are not actually withdrawing policy. All tapering does is provide implied profit margin for banks and lenders, considering Fed Funds are held near 0% and the implied spread to longer term lending rates.
“If the economy continues to improve, we could find ourselves still trying to increase accommodation in an environment in which history suggests that policy should perhaps be moving in the opposite direction,” Plosser said.
Plosser is telling us, in not so many words, exactly what I have been claiming; as long as ZIRP is held, we are INCREASING accommodation, not decreasing it. The ‘taper’ hype is just that, hype.
Now I wonder why he does not just outright mention ZIRP? They want to tame the permissive bubble making policy? Do a surprise rate hike on the Fed Funds.
A nation hopped up on greed moves forward with the media obsessed on QE’s declining asset purchases and still nobody’s making a peep about the real inflation, which is where money is lent to financial institutions at 0% at the expense of Grandma, our kids and any other would-be savers.
I’d like to think the Bad Cops are sincere, but until they start to speak directly about ZIRP I have to believe they are just part of a media campaign designed to give the impression that there is some kind of debate about tightening policy. I’ve said it before and I’ll say it again, as long as ZIRP is held they are inflating. Period.