The untold heroism of financial prudence
No one remembers the protagonist refusing it. sound the iceberg alarm This is simply because the sea in front of you is clear.
A proven path to fame, and sometimes wealth, is a warning of impending financial or economic disaster. If you get it wrong, very few people will remember the false alarm.If you understand it correctly, you can become a sage. “I saw it coming..“
But there’s little glory in being The watchman whose clock passed without incident. That’s why thoughtful people salute those who look beyond the muddy waters with calm and patience.
This is where the fun Thursday night monologue begins. Christopher Waller Fed Director,Properly of the title “Why are you in such a hurry?” Ignoring widespread warnings that the Fed is at risk of recession and should ignore the darts of January’s jobs and inflation data, Waller said the Fed advocated the continuation of the policy. Wait-and-see policy.
“Last week’s high CPI inflation readings may just be a challenge, but they may also be a warning that the significant progress in inflation over the past year may be stalling,” Waller said.
Waller pointed out that it does exist. There’s no reason to fear we’re going into a recessionwhich typically prompts the Fed to cut interest rates.
“I would like to pause here and say, typically, [Federal Open Market Committee] “We will only consider easing policy if there are fairly clear signs that the economy may be in or close to recession,” he said. “But based on the picture I painted of the economy today, it should be as clear to you as it is to me that there are no signs of an imminent recession.”
he also strange double standards Among those who argue that the Fed’s past interest rate cuts have had a slow effect on the economy, but that the economy could deteriorate rapidly if the Fed remains suspended for an extended period of time, include:
Commentators often argue that delaying rate cuts for one or two meetings risks policy overreach that could trigger a recession in the short term. While I find this story interesting, it is also somewhat puzzling. The reason is as follows. When interest rates rise, most of the discussion is about long and variable lags in monetary policy, with rate hikes having a severe impact on the economy for more than 18 months. However, if the rate cut were to be postponed for a short period of time, there would be a risk of sending the economy into a sudden recession. This presumed asymmetry in the lagged effects of rate hikes and rate cuts is puzzling and not supported by any economic model that I am aware of.
wait a minute
Earlier this week, Minutes of the Fed’s January meeting. Digging into the minutes of Fed meetings provides a glimpse into the central bank’s collective psychology. What we can detect is Fear of premature rate cuts It seems to loom larger than the eerie specter of acting too slowly. It’s as if the committee members, in hallowed halls, are fully aware that a rate cut is to make the market expect a parade of further rate cuts, and that the Fed is reluctant to sponsor that parade for no great reason. It seems like he understands.
The latest dispatches from government and the private sector suggest that: No economic iceberg in sight. Existing home sales rose more than anyone expected in January. The Comprehensive PMI, an indicator of economic activity, shows that while the economy is not running as fast as last year, it is not just idling along either. It looks like you’re running a marathon, but you’re setting a fast pace. Meanwhile, the number of first-time applications for unemployment benefits has fallen to a level that would make even the staunchest pessimist smile, at just 201,000 (no one thinks the labor market is very tight). It reached this level in just one week last year.
Electoral Economics: The Fed’s Dance with Democracy
And of course we have that record. The Fed’s historic dance card during the election period. Although the Fed claims it never takes electoral politics into account, our central bank seems to prefer raising rates rather than cutting them in election years. The pages of history are littered with examples from 2000, 2004, and 2016, when the Fed chose to cut rates and chose not to. Times of real crisis like 2008 and 2020. The 1988 episode, a brief flirtation with a cut followed by an aggressive hike, reads like a cautionary tale.
The only time we know of the Fed repeatedly cutting into a growing economy in an election year was in 1992, before the Fed formally set a target for the federal funds rate. But at the time, the Fed was simply continuing the rate-cutting path it had begun. during the last recession.
Federal Reserve Chairman Alan Greenspan prepares to testify before the Senate Banking Committee at the Capitol in Washington, DC, July 21, 1992. In his mid-year assessment of the economic outlook, Greenspan predicted that the U.S. economy would enjoy a modest recovery in growth. The unemployment rate will fall significantly next year. (AP Photo/Charles Duricka)
Although this record is not very long and the sample size is small, it is still striking that the Fed has never turned a knife to growth, low unemployment, and high inflation in an election year.
Fair Wind Forecast: Avoid Notches
The market has moved in the last eight weeks or so. From 7 expected reductions to just 3 reductions. The timing of the first rate cuts has been steadily receding from January, March, May, and now he is June. Even now, the probability of a June interest rate cut remains at 68%. We hope that this movement will continue.
We increasingly recognize that data provides compelling arguments Against the possibility of interest rate cuts this year. With an economy showing resilience and growth, and a political climate that calls for stable policy, the Fed is likely to be more inclined to stick to a prudent course.
Or, as Waller said Thursday night, “Given recent data on the strength of the economy and inflation, it means being patient, careful, methodical and reflective is the right thing to do.” Choose any synonym you like.” No matter what words you choose, they all translate into one idea. Why are you in such a hurry?“
