Today we got the Minutes from the December 15-16 FOMC meeting where the Fed hiked interest rates.  That in itself is not terribly interesting and there is not much news in the Minutes to shock the markets.

Nonetheless it is another day of tightening of US monetary conditions – stronger dollar, lower inflation expectations, lower commodity prices and lower stock markets. But maybe the most alarming set of information comes from the Atlanta Fed that today published a so-called Nowcast for US real GDP growth in Q4 2015 (GNPNow) indicating the US real GDP slowed to just 1% (annualized quarterly growth rate) in Q4.

It is in this environment the Fed continues to signal that more monetary tightening is warranted.

So why is the Fed so hawkish despited very clear signs of continued growth deceleration in the economy and despite the fact that basically all monetary indications that we can think of indicates that monetary policy has become too tight?

To me it we should blame the unholy alliance between those FOMC members that are obsessed with looking at labour market data (to the same extent Arthur Burns was in 1970s) and the macro prudential crowd who worry that the Fed is inflating a bubble (somewhere in some asset market).

Needless to say there are no monetarists on the FOMC and as a consequence the FOMC continues to ignore both the signals from monetary indicators and from the market and as a consequence the risk of a US recession during 2016 (or 2017) continues to rise day-by-day.

PS maybe it is about time to start tracking Google Trends for the trend in Google searches for “recession”.

HT Michael Darda

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