The Fed Does Nothing

The Fed Does Nothing

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C. Jay Engel

2017 is off with a drab whisper as the FOMC, as expected, kept the Fed Funds rate target unchanged at .5-.75%. Further, there was no mention of the alleged three 2017 hikes, which “experts” might consider as to be dovish move.
The Press Release was optimistic about the economy and cited a strengthening labor market, economic expansion, and consumer sentiment. Perhaps they haven't seen the delicate fourth quarter GDP numbers?
One of the themes of 2017 is the issue of the Fed Balance Sheet and whether the Fed is going to be talking up some sort of effort toward shrinking it. On this front, we read:

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way.

Because the Fed would likely begin balance sheet changes by halting— or at least slowing down— the amount of “reinvestments,” this statement is indicating that it has no actual plans to address the balance sheet in the foreseeable future. Go figure. But the statement also emphasizes that addressing the balance sheet won’t take place under the FedFunds rate normalization process is much further down the road.
This, coupled with the decisions to not touch the Fed Funds target and not even mention 2017 rate hikes indicates that the balance sheet topic probably wont be seriously discussed for some time. Of course, touching the balance sheet is something the Fed is quite fearful of. Pricking the bubble is a massive no-no that the bureaucrats in every position in Washington want to avoid like the plague.
The FOMC (non)decision is typical of what we have come to expect from the Fed. They pretend like they are optimistic about the economy, while at the same time they bend over backwards to not upset those who depend on such radically “loose monetary policy.”
It’s the most damaging and devastating example of “kicking the can down the road” that the world has ever seen. But those in power and their lobbyists are addicted to easy money. And so they keep it flowing and never look back.