You probably know that when the central bank raises or lowers its key interest rate, a statement to that effect shows up on the Fed's website -- specifically, from the Federal Open Market Committee (FOMC). Usually these statements are boring and predictable, but not always. Today's statement was really, really, REALLY different.
What do I mean? Well, I'll put it this way: Different enough so that I wondered if the boys & girls on the FOMC actually had a quiet little wager going amongst themselves this afternoon. The wager was whether the following question would be answered with a "yes" or a "no" --
When people read our statement, do they really think about what it says?
As for how they'd get their answer, it's simple: An immediate rally in stocks meant "yes," an immediate decline meant "no." And a 350-point gain in the Dow left no doubt about the wager.
So: What the heck am I talking about?
I'll make it as plain as I can. Here's the direct quote from the FOMC statement:
The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.... The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.
Now, cutting the fed funds rate down to 0-.25 percent was indeed different, but that's not what got my attention -- nor would it alone be enough to make the FOMC wonder if people pay attention to what the central bank is actually saying. What was "really, really, REALLY" different was the claim that the Fed "will employ all available tools..."
Because, the Fed doesn't have any tools left. Virtually all the central bank's monetary policy power resides in raising or lowering the fed funds rate. Beyond that, any talk about "all available tools" is gibberish. Anyone who read the FOMC statement and missed the irony doesn't get it, which the FOMC itself knows full well. Now they also know that people really don't think about what they say.
Yes, and now they've made "money for nothing" -- but they'll have to make "chicks for free" before I believe the Fed has a prayer of saving the economy.