Uncertain Fed Means Certain Outcome – Part 1

In his recent testimony to Congress, Federal Reserve Chairman Ben Bernanke used the phrase “unusually uncertain” to describe the U.S. economic outlook. The word uncertain was used five times in the statement released at the conclusion of the June 23 meeting, and was used 16 times in the minutes released on July 28.

The economy again began to grow last summer, putting the current bout of early cycle uncertainty at about four quarters since the end of the recession. In contrast to Chairman Bernanke’s remark, the current uncertainty is not all that unusual at this early stage of an economic cycle. In fact, based on the Fed’s own words, the current level of uncertainty is actually common at this stage of the economic cycle.
• In March 2003, about five quarters after the 2001 recession had ended, the Fed’s Beige Book used the word “uncertain” 30 times to describe the economic environment, almost twice as often as the July 2010 Beige Book. Also, the minutes of the March 2003 Fed meeting used the word “uncertain” 16 times, three times as often as the five times it was used in the June 2010 meeting minutes.
• In October 1992, about six quarters after the end of the 1991 recession, the word “uncertain” appeared 23 times in the transcript of the October 1992 Fed meeting.

The response by the Fed to uncertainty over the economic environment has been anything but uncertain. They have always provided the economy with one last booster shot of stimulus. During the past four decades, the Fed has cut rates one last time well after the recession had ended when a soft spot emerged. For example, related to the above examples of Fed uncertainty, the Fed cut the Federal Funds target rate in June 2003 and in September 1992.


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