Don’t ever think for a minute that the central bankers know what they’re doing. They don’t. And that’s my own view, but I’ve heard that recently from a couple central bankers. I recently had spent some time with one member of the FOMC, the Federal Open Market Committee, and another member of the Monetary Policy Committee of the Bank of England, which is the equivalent of their FOMC, both policymakers, both central bankers.
And they said the same thing, ‘We don’t know what we’re doing. This is a massive experiment. We’ve never done this before. We try something. If it works, maybe we do a little more; if it doesn’t work, we pull it away, and we’ll try something else.’ And the evidence of this – again, I’ve heard this firsthand, and it’s my view – but the evidence for this is that their have been 15 separate fed policies in the last 5 years.
If you think about it, they started with forward guidance, which was, ‘We will keep rates low for an extended period of time.’ And then they said, ‘Oh, extended means all the way to 2013.’ And then they said, ‘All the way to 2014.’ And they were kind of getting around to, ‘All the way to 2015,’ and they said, ‘Wait a second. The dates don’t work. Let’s use some numeric concepts.’
So, they started nominal GDP targeting where they said, ‘We have this threshold of 2.5 percent inflation, but not based on actual inflation, but based on projected inflation, as projected by the Fed, which means it could be whatever they want it, and then 6.5 percent unemployment, but when we got down to 6.5, they said, ‘Oh, just kidding. We’re not gonna apply that.’
This post was published at David Stockmans Contra Corner on December 14, 2014.