Today's FOMC press conference was the standard affair. Reporters ask broad questions, Yellen responds with even broader comments that amble aimlessly leaving no one any wiser as to The Fed's true intent. That is, until Bloomberg TV's Kathleen Hays decided enough was enough, and wanted to get to the bottom of just why a "data-dependent" Fed is hiking in a world in which economic data is rapidly deteriorating.
The bespectacled Hays dared to suggest some 'facts' and real news - as opposed to Yellen's 'forecasts' - in an effort to comprehend what changed in March to turn a ubiquitously dovish Fed into a seemingly panic-stricken pack of hawks...
I'm going to try to take the opposite side of this, because -- and this question about market expectations, and how the market's got things wrong, and then how you say the Fed suddenly clarified what it already said. But for example, if the -- if you look at the Atlanta Fed's latest GDP tracker for the first quarter, it's down to 0.9 percent. We had a retail sales report that was mixed. We had the, you know, the upper divisions of previous months make it look better. But the consumer does not appear to be roaring in the first quarter, kind of underscoring the wait-and-see attitude you just mentioned.
If you look at measured of labor compensation, you note in the statement that they're not moving up. And in fact, they are -- and if you look at average out, there are so many things you can look at. And you yourself have said in the past that the fact that that is happening is perhaps an indication there's still slack in the labor market.
I guess my question is this: In another sense, what happened between December and March?
GDP is tracking very low. Measures of labor compensation are not threatening to boost inflation any time fast. The consumer is not picking up very much. Fiscal policy, we don't know what's going to happen with Donald Trump. And yet, you have to raise rates now. So what is the -- what is the motivation here? The economy is so far from your forecast in terms of GDP, why does the Fed have to move now? What does this signal, then, about the rest of the year?
Yellen frowned awkwardly and began...
So GDP is a pretty noisy indicator.
... And then she added.
If one averages through several quarters, I would describe our economy as one that has been growing around two percent per year. And as you can see from our projections, we -- that's something we expect to continue over the next couple of years.
Now, that pace of growth has been consistent with a pace of job creation that is more rapid than what is sustainable if labor force participation begins to move down, in line with what we see as its longer-run trend with an aging population.
Now, unemployment hasn't moved that much, in part because people have been drawn into the labor force. Labor force participation, as I mentioned in my remarks, has been about flat over the last three years. So in that sense, the economy has shown over the last several years that it may have had more room to run than some people might have estimated, and that's been -- that's been good. It's meant we've had a great deal of job -- job creation over these years.
And there could be -- there could be room left for that to play out further. In fact, look, policy remains accommodative. We expect further improvement in the labor market. We expect the unemployment rate to move down further and to stay down for the next several years. So we do expect that the path of policy we think is appropriate is one that is going to lead to some further strengthening in the labor market.
So not one comment on the actual data points that Hays refers to. Merely the standard - resort to 'something about employment' comment - and end on a reassuring tone of accomodation remains. But Hays was not done and unlike the rest of the room would not take Yellen's wishy-washy bullshit response as writ...
Just quickly then, I just want to underscore -- I want to ask you, so following on that, you expect it to move. But what if it doesn't? What if GDP doesn't pick up? What if you don't see wage measures rising? What if you don't -- what if the (inaudible) gets stuck at 1.7 percent?
Would you -- is it your view perhaps that if there's a risk right now in the median forecast for dots (ph), that it's fewer hikes this year rather than the consensus or more?
To which an anxious Yellen replied - notably eyeballing off camera to someone - clearly upset at being cornered on some facts...
Well, look, our policy is not set in stone. It is data- dependent and we're -- we're not locked into any particular policy path. Our -- you know, as you said, the data have not notably strengthened. I -- there's noise always in the data from quarter to quarter. But we haven't changed our view of the outlook. We think we're on the same path, not -- we haven't boosted the outlook, projected faster growth. We think we're moving along the same course we've been on, but it is one that involves gradual tightening in the labor market.
I would describe some measures of wage growth as having moved up some. Some measures haven't moved up, but there's is also suggestive of a strengthening labor market. And we expect policy to remain accommodative now for some time. So we're talking about a gradual path of removing policy accommodation as the economy makes progress moving toward neutral. But we're continuing to provide accommodation to the economy that's allowing it to grow at an above-trend pace that's consistent with further improvement in the labor market.
So when faced with factual data points such as real wage declines, collapsing GDP growth expectations, disappointing retail sales, and uncertain fiscal policy, the chair of The Federal Reserve defends the decision to hike rates for the 3rd time in 11 years by saying that "data is noisy", that The Fed's forecast for growth remains positive, and that The Fed remains accomodative.
For now it appears what matters to The Fed is not 'hard' real economic data but 'soft' survey and confidence data...
As a reminder this may be the weakest quarter of economic growth for a rate hike since 1980!!
Sadly, we suspect Ms. Hays future question-asking privileges may well go the way of The Wall Street Journal's Pedro Da Costa.