The Federal Open Market Committee (FOMC) released its latest statement on monetary policy. As was widely expected, the Federal Reserve is hiking its target range for the federal funds rate by 25 basis points (0.25%).

This was exactly what the financial media and investors were expecting. The only questions that really remained were the words to be spoken by Jerome Powell and any changes in expectations for future rate hikes.

There were slight changes from the previous statement. For example, in the previous statement, it said, “In determining the pace of future increases in the target range…”. In the latest statement, it says, “In determining the extent of future increases in the target range…”.

So the word “pace” was replaced with the word “extent”. This one word difference implies that instead of worrying about how much rates will increase each meeting, it is more a question of how long the rate increases keep happening.

This was a slightly “dovish” sign from the Fed, and investors seemed to like the signal that maybe the Fed won’t be quite as tight in the future. Stocks were mostly up, and gold also went higher for the day.

The Implementation Note with the statement was as expected. The amount paid on bank reserves went up (this is how the Fed controls its target rate now), and the roll off of assets will continue at a pace of $95 billion per month.

The Fed’s rate is now above most of the yield curve, which is the first in a long while. But real (inflation-adjusted) rates are still incredibly low. They just aren’t negative any longer.

Powell’s speech seemed rather conventional as usual. He said that it would be premature to declare a victory over inflation and that there could still be more rate hikes ahead to bring down inflation. Of course, the price inflation being referenced was caused by the Fed’s reckless monetary policy in the first place.

Does the Fed Ever Deviate from Expectations?

One thing I’ve noticed is that the Fed always falls in line with market expectations. But it’s not like these market expectations are coming from the Fed.

It’s not like the Fed announces what it is likely to do at the next meeting. Powell doesn’t say, “Expect another 25 basis point hike at the next meeting.” That never happens.

So it is the financial media and the “expert” economists who seem to set the expectations. They interpret words the way they want, and then say that we should expect this or that at the next meeting.

I can’t remember ever when the Fed has surprised everyone and done something drastically different that what “the market expected”.

There may have been times where there was some debate within the financial media. “Will the Fed hike 50 points or 75 points?” So maybe it isn’t always known precisely what will happen. But going into this latest meeting, it was quite clear that we would see a 25 basis point hike in line with market expectations.

It makes you wonder if the Fed is actually making any decisions other than making up the wording for its justifications to meet market expectations.

It’s kind of like how the president doesn’t really make many decisions. I’m not just talking about the current zombie who is told what to do and say. I mean that every president seems to be handed an agenda, and they have to work within the limits of what is allowed. Perhaps this is why Trump was so hated by the establishment. He occasionally went off script and said his own thing.

Is the establishment blob dictating monetary policy too? It isn’t any one person. It is just the establishment, which admittedly is hard to define. It is made up of those who have power and have an interest in maintaining the status quo to the greatest degree possible to enable wealth and power to continue to flow to them.

I really don’t think Jerome Powell is making any big decisions. He is following the lead of “market expectations”, which is really the financial establishment. Powell just has to make sure he does a good job of communicating his “actions”.

Economic Outlook

The powers-that-be really are worried about price inflation and a declining dollar. They realize that they still want the dollar to be king of the world in terms of currencies. So they are willing to risk a deep recession to make sure that the dollar reigns supreme.

The yield curve is still highly inverted. Short-term rates are generally higher than long-term rates. This is a signal of a hard recession coming.

In the face of this, the Fed continues to hike rates and slowly drain its balance sheet. We are going to get a recession good and hard.

The Fed will not reverse course until price inflation is way down or until the bond market or major financial institutions need bailing out. They will let a deep recession happen. They will allow stocks to fall a lot more than they already have.