Monetary Gobbledgook

I have been complaining for weeks about the Fed's inherent bias against fighting against inflation. And they have done it again -- they have waiting so long to work against inflation that they now are between that rock and hard place. Inflation has accelerated and that means that to effectively stop the climb, there will be very negative consequences to economic growth. 

So how does the Fed handle this? Easy, They obfuscate. I just read an article that had an easy title. The title indicated the Fed is proposing to use some tools that will work against inflation. Sounds good. Not. Reading the article was like reading an advanced physics textbook. Instead of blatantly or directly addressing the idea that setting higher interest rates would be used to slow demand and quell inflation, we got a long and complicated thesis about the Fed's buying behavior. 

The Fed is not buying the latest spring fashions. The Fed says it is going to stop buying as many government bonds. When I taught monetary theory, the story was pretty simple. If the Fed stops buying or it begins selling its huge stock of government bonds, it usually has the effect of reducing the market prices of these bonds. As the market price of the bonds falls, the return or market interest rate rises. That rise in interest rates is designed to reduce spending and inflation. Pretty simple. 

But not now. I never saw any of that in the recent articles. Instead we are fed a diet of minutia about passive runoff.  Passive runoff? Is this gardening 101? That sounds like a urinary issue for over-70 guys. But no, passive runoffs appears to be the way the Fed is going to fix our inflation problem. They are not going to aggressively sell some of their infinite stockpile of government bonds. That might be too clear. Maybe too aggressive. Instead, behind the scenes they are not going to replace some of the bonds they hold that mature. Passive. Runoff. Wow. 

Do they ever say why they want to behave passively? I can't find it in anything I see published. I am left to conclude that they want to be clever. Better, they think, to obfuscate than to be clear about the fact that they are fighting inflation. Maybe this way, when the usual negative growth follows a policy to fight inflation, they can blame it on corporate greed. Or blame it on Elvis. If no one understands what they are doing, the Fed can skate. If people do not understand what the Fed is doing on its backdoor, then the negative effects of fighting inflation on economic growth might at first be smaller. But the Fed can't hide its true intent for long. People will figure it out eventually and then all hell is going to break loose as dismal economic expectations take hold. 

What's the alternative? The alternative is honesty. Sorry folks, we waited too long to fight inflation and now we are going to have a recession.  Either way, we are going to have a recession if the Fed fights against rising inflation. They can choose to be honest or instead they can confuse people with strange language. So far we are not getting much honesty. Passive runoff. Really?