Bloomberg, please stop covering the Fed

Temporary

This may sound trifling and nitpicky, but stuff like this drives me nuts.

In this article, a Bloomberg journalist who is just clever enough to be dangerous is trying to get across the idea that the Fed moves the funds rate around in large part to deliver changes of broader financial conditions that are in turn meant to influence spending and ultimately inflation.

But he simply cannot help himself from promoting two falsehoods doing so. First, he strongly implies that the Fed is responding to the stock market per se and that caring about financial markets represents some sort of wildly new departure for Yellen. (I know the headline writer and the journalist are not always the same person, but if you read the story you will see that the former channels the latter, in this case.)

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Second, and this is the one that irritates most, they imply that the Fed “wants” to raise interest rates and looks for a stronger stock market to “allow” them to do so.  That this extremely conventional and wrong idea is directly at odds with the main point of their article seems to escape.

Read this passage if you can stomach it:

“What is different this year versus previous years is sentiment is much improved, and that sentiment has translated into easier financial conditions, not necessarily more buoyant actual data,” Michael Gapen, chief U.S. economist at Barclays in New York, said.

“Easier financial conditions ultimately made it easier for them to go in March — they had been thrown off their plans in previous years in part because sentiment wasn’t strong and financial conditions tightened,” said Gapen, who worked at the Fed Board in Washington during the financial crisis.

So true, their plan to monitor financial conditions was thrown off by monitoring financial conditions.

The consensus Fed watcher is never going to get the answer right if he keeps so easily getting distracted from what the question is.