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Saturday, July 25, 2015 4:27 PM

Fed Staff Accidentally Posts Bearish Economic Forecast and Prediction Inflation Would Not Hit 2% by 2020; Upset Over Leaks? Why?

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The Fed created quite a stir by inadvertently posting documents on its website. The documents revealed some expected things, as well as a few startling (but not to Mish readers) projections.

Please consider Fed Inadvertently Publishes Staff Forecast for 2015 Rate Hike.

Staff economists at the Federal Reserve expect a quarter-point U.S. interest rate increase this year, according to forecasts the Fed mistakenly published on its website in a gaffe that drew criticism about its ability to keep secrets.

Federal prosecutors are currently probing an alleged leak at the Fed of market-sensitive information to a private financial newsletter in 2012.

"It regrettably appears once again that proper internal controls are not in place to safeguard confidential Federal Reserve information," said Representative Jeb Hensarling of Texas, a Republican who chairs the House Financial Services Committee and is pressing Fed Chair Janet Yellen for documents regarding the 2012 leak.

The Fed said in a statement that the forecasts were "inadvertently" included in a computer file posted to its website on June 29.

Fed officials said the disclosure was due to procedural errors at a staff level and that the mistake was discovered on Tuesday this week. The matter has been referred to the Fed's inspector general.

"It is baffling that these leaks continue to occur," said Congressman Randy Neugebauer, a Texas Republican who chairs the House subcommittee on financial institutions and consumer credit.
Unintentional Projections

  1. One hike in 2015: The staff expected policymakers would raise their benchmark interest rate, known as the Fed funds rate, enough for it to average 0.35 percent in the fourth quarter of 2015. That implies one quarter-point hike this year, as the Fed funds rate is currently hovering around 0.13 percent.
  2. Inflation: the staff did not expect inflation to ever reach the Fed's 2.0 percent target. By the fourth quarter of 2020, they saw the PCE (personal consumption expenditure) inflation index rising 1.97 percent from a year earlier.
  3. Growth: The Fed's staff also took a dimmer view of long-run economic growth, expecting gross domestic product to expand 1.73 percent in the year through the fourth quarter of 2020. The views of Fed policymakers for long-term growth range from 1.8 percent to 2.5 percent.

Upset Over Leaks - Why?

Congress is upset over leaks. Is that what people should really be upset over?

Why? We should be happy to have a glimpse of what this secret sect thinks, discusses, and wants to hide vs. the spoon-fed crap they want us to hear.

What To Be Upset Over

  • I propose people should be upset at a group of clowns who actually believe they can steer the economy like a truck, when it's obvious they cannot.
  • We should also be upset because the documents suggest that Fed official statements are nothing but souped-up nonsense to appease the financial markets and Fed egos about what they don't know but pretend to. 

History Lesson

History proves that the Fed produces bubbles and busts of increasing amplitude over time, to the detriment of the middle class.

Indeed, the Fed, along with public unions and corrupt politicians are the very sponsors of the income inequality that Janet Yellen, the unions, and politicians rail against.

It's amusing what the Fed staffers came up with. Fed officials say it's not what they believe. Does the denial ring true? Not to me. But it doesn't really matter. 

The fact of the matter is the Fed and central banks in general have no idea where interest rates should be, what the money supply should be, what unemployment should be, how many cars should be produced, how many houses should be built, or what the price of assets should be.

A group of clowns sitting in a room cannot possibly decide these things. And in attempting to do so, they send out all sorts of false economic signals about demand, creating bubbles in the wake. The housing boom-bust is a perfect example. Right up until the housing bust, it actually appeared as if there was a housing shortage. The same thing happened outside the US.

Increasing Interference

Central banks worldwide have long distorted markets with government bond price manipulation.

Now, central banks in Asia and Europe stretched the bounds by investing in corporate bonds and equities.

We can say for certain these preposterous manipulative efforts will blow sky high. What we cannot state is when. Nor can we say how much additional damage these central bank manipulators cause in the meantime.

Mike "Mish" Shedlock

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