Today’s FOMC meeting.

In the old days the Fed made plenty of careers on Wall St – so-called “Fed watchers,” called to duty as one had to read the tea leaves to make out policy intent; there was no announcement post the FOMC decision.  An entire industry was spawned.  Most of those still alive hate us to this day as we had a hand in ending that charade, and their jobs along with it.

Now Bernanke had taken pains to achieve transparency by the means of a huge group hug; no more cloak and dagger stuff but a sensitivity session out of the 60’s. But since 1) the Fed is not especially adept at discerning the economic landscape ahead, and 2) the market crowd takes what policy makers say as gospel, it will backfire.

Witness a recent Op-Ed in the WSJ, Feb/22, - Why We Can’t Believe the Fed by Ben Steil of the Council of Foreign Relations.  Here one of the crowd scolds the Fed for a greatly flawed forecasting track record.  A god should know better. The whole article is freighted with the sense of desertion and abandonment.

Captain James Cook allowed the Hawaiian natives to believe he was a god.  When they found out he was not, it did not end well for him.

FF’s will not remain at rock bottom into 2014 as Bernanke says they will.  Economic vigor will see to that.  More policy makers are coming to understand that reality.  Maybe Bernanke too, but from an activist Fed this servers the role of cheerleader, which is about all the Fed can do.

This Fed’s interventionist policies have presented at best a wash – great for equity types, lousy for the rest of us. We do not have a liquidity problem.  We do not have a monetary problem. Bernanke needs to learn to sit on his hands.  We have a fiscal problem – too much spending, too much debt and too much taxing.

The Fed has no more tools and so has turned to cheerleading – making statements about intent in the hope of assuring the market crowd of its commitments. But of course rock bottom short rates in times of 1) nascent price pressures and 2) expanding economic momentum mean just one thing – an expanded term structure.

Exercise this view by the way of the Euro strip.

Robert Craven