Leading From Behind
Jan 28, 2022
Mainstream financial media loves to make a big deal of Fed Open Market Committee meetings. Back in the 90s, Mark Haines of CNBC invented the “Greenspan briefcase tell.” If Alan Greenspan, then Chairman of the Fed, was carrying a briefcase, then the Fed was about to raise rates. It actually worked surprisingly well. But the truth is, the Fed doesn’t decide on rates and hasn’t taken a leadership position on interest rates in a long time.
When it comes to raising or lowering rates, we’re really talking about a vetting process for what’s needed. The Fed is made up of academics who established their respective bona fides through studies and papers. In turn, they are seen as trusted individuals because of their rigorous academic credentials, much like doctors. They are not the only ones vetting though and maybe not even the best choice.
The other entity that’s vetting is the market itself. If you’re an efficient market theorist, there is no more qualified body than a liquid market. And subscribers to this theory understand the market is already signaling higher interest rates ahead. That leaves the question, why the disconnect between the Fed leaving rates alone and higher interest rates in the bond market?
Well, your guess is as good as ours. But it seems no one at the Fed wants to actually lead and do what’s necessary. Where markets don’t care about repercussions, which is what allows them to be efficient, individuals don’t want to be seen as the one who turned on the lights and told everyone the party is over. As a result, individuals become less efficient about doing what’s needed and you end up with a Fed that continually kicks the can down the road.
Unfortunately, we’ve arrived at a place where the Fed reflects the rest of our politics. They’ve become less about doing. No one wants to be the incumbent party because criticizing, obstructing and delaying is a lot easier than actually making a call. Ultimately though, decisions do have to be made and the longer those decisions are put off, the harder they become to make.
Whether it’s 4th and 1, cutting off a leg to save a life, or raising interest rates, tough calls in respective fields have to be made from time to time. Who is best at making those calls is a matter of debate. But leading from behind isn’t leading and a Fed that can’t make tough calls has no need to ever carry a briefcase.
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