Fed policy: clear as mud, apparently

It probably tells you everything that you need to know about the current state of the Federal Reserve and monetary policy that even in the first ten minutes of Yellen's Q&A, much of the questioning revolved around issues such as bank regulation/capital requirements and the diversity hiring policies of the Federal Reserve System.   While these are no doubt worthy issues that deserve an airing, rarely are they seen to be sufficiently paramount as to trump questions on the economy and the policy outlook.

Such, it seems, has been the soporific nature of the Fed's policy profile over the last several years that even Senators cannot be arsed to drill down as to what the Fed is really thinking.  Indeed, based on yesterday's evidence, they cannot even be arsed to learn what Fed policy actually is!  Indeed, one could virtually see Sen. Bob Corker leap into the saddle of his high horse as he started to fulminate about a hidden major policy shift and a stealth QE4....only to be gently reminded by Yellen that yes, the Fed has been reinvesting the proceeds of maturing securities for quite some time now.

One can only imagine what similarly ill-informed participants might ask witnesses in other Senate committees:

Agriculture: "How long are we going to risk our children's lives by permitting the use of DDT on food crops?"

Armed Services: "Can the general explain how the US proposes to drive a wedge between the Soviets and vulnerable Warsaw Pact states?"

Budget:  "Did you know that there is such a thing as a debt limit for the United States?"

Energy and natural resources: "How can we expect hardworking Americans to live with such high oil prices?"

Finance: "Why should downtrodden American corporations be forced to shoulder such an unfair tax burden when private citizens are able to skive off with an all-in tax burden of only 45% or so?"

Foreign relations:  "Isn't it true that there only three kinds of countries:  Uhmurca, those worth invading, and those not worth invading?"

Homeland security: "Admit it: do you ever look at the images from the 'naked scanner'?"

Judiciary: "Is it really appropriate to hold confirmation hearings when your term ends in four years?  Do we really want to saddle America with a Supreme Court justice nominated by a potential lame duck president?"

The mind boggles.

Equally befuddling was Yellen's comment that the Fed isn't really engaging in much forward guidance at the moment (Ed: what about those damned dots?), but that participants' remarks about possible policy outcomes might constitute forward guidance.

Uh, OK.   If guidance is part of your policy tools, and you're not even sure what constitutes guidance or not, is it any wonder that the market keeps getting wrong-footed?  As Macro Man observed a few months ago, the Fed would do well to speak less but say more.