The most amusing moment of today’s Janet Yellen press conference occured when none other than Steve Liesman asked Yellen a question, one which he may regret as it is dangerously close to “Pedro da Costa” territory, which goes to the heart of the matter: “does the Fed have a credibility problem?”
The question goes to the Fed’s self-described role of being “data-dependent”, because if the Fed indeed adhered to the data, it would be hiking right now: it’s latest forecast sees long-term unemployment of 4.7-5.0%, right where the official unemployment rate is currently, while the Core PCE of 1.7% is already higher than the high range of the Fed’s 2016 year end forecast of 1.4%. In light of this data, it makes no sense for the Fed not to be hiking, and certainly makes no sense to be reducing the number of expected rate hikes in 2016 from four to two.
The jarring congitive dissonance appears to have finally hit Liesman, who asked the following question:
Madam Chair, as you know, inflation has gone up the last two months. We had another strong jobs report. The tracking forecasts for GDP have returned to two percent. And yet the Fed stands pat while it’s in a process of what it said at launch in December was a process of normalization.
So I have two questions about this. Does the Fed have a credibility problem in the sense that it says it will do one thing under certain conditions, but doesn’t end up doing it? And then, frankly, if the current conditions are not sufficient for the Fed to raise rates, well, what would those conditions ever look like?
The answer was a 261 word jumbled nightmare of James Joyceian stream of consciousness interspersed with high-end econobabble that we, for one, were completely unable to follow. This is what Yellen responded verbatim:
Well, let me start — let me start with the question of the Fed’s credibility. And you used the word “promises” in connection with that. And as I tried to emphasize in my opening statement, the paths that the participants project for the federal funds rate and how it will evolve are not a pre-set plan or commitment or promise of the committee. Indeed, they are not even — the median should not be interpreted as a committee-endorsed forecast. And there’s a lot of uncertainty around each participant’s projection. And they will evolve. Those assessments of appropriate policy are completely contingent on each participant’s forecasts of the economy and how economic events will unfold. And they are, of course, uncertain. And you should fully expect that forecasts for the appropriate path of policy on the part of all participants will evolve over time as shocks, positive or negative, hit the economy that alter those forecasts. So, you have seen a shift this time in most participants’ assessments of the appropriate path for policy. And as I tried to indicate, I think that largely reflects a somewhat slower projected path for global growth — for growth in the global economy outside the United States, and for some tightening in credit conditions in the form of an increase in spreads. And those changes in financial conditions and in the path of the global economy have induced changes in the assessment of individual participants in what path is appropriate to achieve our objectives. So that’s what you see — that’s what you see now.
Apparently neither did Liesman, who openly admitted in his traditional post-Fed spar with Rick Santelli, the following:
Santelli: Steve, could you understand any of it? Any of it seriously? Just a yes or no.
Liesman: Not much, it was not precisely responsive to the question i asked.
To be sure, Yellen’s response to Liesman’s very simple question merely confirms that any credibility the Fed may have had is long gone; but the real emerging problem for the Yellen Fed is when such stalwart adherents to the Fed’s party line as Steve Liesman are not only losing the plot, but are openly admitting that Yellen no longer makes sense.
And if the Fed can not make a favorable impression on those who are paid to at least pretend that they “get it”, what about the rest of the market.
Worst of all, since the Fed peddles only in faith and “perpetuating the narrative” du jour, in this case one that the Fed has credibility despite not doing what it has explicitly said it would do, how long until it is not just Liesman, but everyone else, who openly admits that the Fed’s emperor is fully naked.
The exchange between Liesman and Santelli is below. We apologize for the poor picture quality: CNBC appears to have edited this particular segment out.