“Congress Is Doing Nothing to Incent Job Creators” And More Important Fedspeak

Last week’s release of the most recent FOMC minutes contained few real surprises, but tied a bow on an unprecedented period of Fed-watching, the FOMC as market-driver, and the really quite remarkable debate among Fed members on QE3.

Beginning with Chairman Ben Bernanke’s speech at Jackson Hole, veteran Fed observers have remarked that they “have never seen this sort of period of so much ‘spirited’ discussion among Fed Presidents in the public eye.”

-By our count, over 20 “major” speeches by the Fed Chair, Vice Chair, or Fed Presidents in a period of 36 days

-Countless “minor” talks and appearances

-Very public press interviews, primarily regarding QE3, but not exclusively

Thursday’s release of the FOMC minutes confirmed again what the markets essentially already knew: grave concerns over the employment situation, economic growth on a global basis, and the ‘Fiscal Cliff”. They also put forward a picture of relative unanimity among voting FOMC members, but reading between the lines, some heartfelt debate:

“Some participants thought past purchases were useful because they were conducted during periods of market stress or heightened deflation risk and were less confident of the efficacy of additional purchases under present circumstances. A few expressed skepticism that additional policy accommodation could help spur an economy that they saw as held back by uncertainties and a range of structural issues…and all members but one agreed that the outlook for economic activity and inflation called for additional monetary accommodation” --(FOMC minutes of the Sept.12-13 meeting, released 10/4/12. Richmond Fed President Jeffery Lacker the lone opposing vote: “Mr. Lacker dissented because he believed that additional monetary stimulus at this time was unlikely to result in a discernible improvement in economic growth without also causing an unwanted increase in inflation…”

But aside from Mr. Lacker’s dissent behind closed doors, it seems that each and every Fed President has had their say, in what Bloomberg guest Vincent Reinhart, former Fed official and Morgan Stanley economist, called today, “litigating in public”.

We thought it might be of some interest to take a brief walk through memory lane here and some of the more outspoken and interesting Fed official comments of the past month, beginning with Mr. Bernanke’s rather dry remarks at Jackson Hole.

“A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks. The potential benefit of policy action, of course, is the possibility of better economic outcomes--outcomes more consistent with the FOMC's dual mandate.” --Bernanke in his Jackson Hole comments

Ironically, Vice Chair of the Fed Board of Governors, Janet Yellen, who also has headed a subcommittee on Fed communications/transparency, has been relatively quiet in the post-Jackson Hole period, but has been given immense credit for helping to “wrangle” the Fed hawks pre the FOMC September decision and has consistently called for more easing for the past six months, saying repeatedly, "An extended period of highly accommodative policy is necessary to combat the persistent headwinds to recovery."

Ok, so far so good. VC Yellen greases the wheels this summer, Bernanke tees it up at Jackson Hole and then the Chairman hits out it out of the park during the FOMC announcement day on September 13. He did make it abundantly clear, however, that he was frustrated with the lack of governmental action regarding both the threat of the “Fiscal Cliff” and employment.

“If the fiscal cliff isn't addressed, as I've said, I don't think our tools are strong enough to offset the effects of a major fiscal shock so we'd have to think about what to do in that contingency…I want to be clear -- While I think we can make a meaningful and significant contribution to reducing this problem (unemployment), we can't solve it…We're looking for policymakers in other areas to do their part…we can't solve this problem by ourselves."

But then comes the “interesting” part, as Fed Presidents put their own spin pro and con on the FOMC’s actions.

"Unemployment does remain high by historical standards, but improvement in labor market conditions appears to have been held back by real impediments that are beyond the capacity of monetary policy to offset. In such circumstances, further monetary stimulus runs the risk of raising inflation in a way that threatens the stability of inflation expectations..Channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve.” -- Federal Reserve Bank of Richmond President Jeffrey Lacker, 9/15.

“I was not in favor of doing more. We have done a lot.” —9/19, non-voting member KC President Esther George.

“By increasing monetary accommodation, the Committee can better meet its employment mandate while still satisfying its price-stability mandate…( the Fed) should keep the fed funds rate extraordinarily low until the unemployment rate has fallen below 5.5 percent, as long as inflation doesn’t exceed 2.25 percent.” -- Federal Reserve Bank of Minneapolis President Narayana Kocherlakota on 9/20, fairly dramatically reversing his previously-stated hawkish views and suggesting that rates might remain low for another four years

“MBS purchases will continue until we see a better employment situation. If we do not see improvement, more action may be taken. And inflation will be monitored closely and kept near 2 percent.” --Federal Reserve Bank of Atlanta President Dennis Lockhart on 9/21, raising perhaps the prospect of QE4 already?

“We should take a little bit more (of a) wait-and-see posture. ... I would have voted against it based on the timing. I didn't feel like we had a good enough case to make a major move at this juncture.” -St. Louis Fed President James Bullard, 9/19.

“We cannot be complacent and assume that the economy is not being damaged if no action is taken. If we continue to take only modest, cautious, safe policy actions, we risk suffering a lost decade similar to that which Japan experienced in the 1990s. It is essential to do as much as we can now to bolster the resiliency and vibrancy of the economy.” –aggressively dovish Federal Reserve Bank Chicago President Charles Evans on 9/26

"In the absence of further monetary easing, I concluded that growth would remain too subdued over the next several years to make big inroads into the spare capacity that remains from the Great Recession…If you're trying to get a car moving that is stuck in the mud, you don't stop pushing the moment the wheels start turning--you keep pushing until the car is rolling and is clearly free.” --9/18, Federal Reserve Bank of New York President William Dudley

“It will come as no surprise to those who know me that I did not argue in favor of additional monetary accommodation during our meetings last week. I believe that with each program we undertake to venture further in that direction, we are sailing deeper into uncharted waters. Nobody really knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere