I promised you a market-oriented commentary on this week's Fed symposium in Jackson Hole, Wyoming, but as I gather my thoughts it occurs to me that there's not much of a market story to tell here. Or, I should say, nothing surprised me.
Janet Yellen did her best to help the world understand that she's having a tough time understanding today's labor market.
Dovish central bankers cited their chosen data points while explaining to interviewers why this is no time to be "normalizing" (raising) interest rates. As if abnormalizing is a good thing.
Hawkish bankers cited their chosen data points while explaining to interviewers why there's no time like the present to be normalizing interest rates. Can you help but sympathize with someone who wants things back to "normal"?
Normal?? What the heck is normal anyway? Compared to what? To when? And who decides? Is the normal 10 year treasury yield its long-term average of 4%? If it is and we get there in a hurry, I assure you, the financial markets are going to react in an abnormally bad way. Which I strongly suspect is why the doves aren't the least bit interested in getting interest rates back to "normal" anytime soon---or all at once.
My, what a catch-22! If you were an economist who just woke up from a 7-year coma and the first question you ask is "what's the fed funds rate", you'd conclude that we're in the midst of a terrible recession. But, clearly (as I pointed out Friday), we're not. So why the crisis-like policy? In my view, the Fed suffers PTSD every bit as much as the bloke who panicked in '08 and turned his 401(k) into a 201(k). And, like that halved bloke, the Fed is desperately afraid of making another mistake.
The scary thing is, the mistake of the Fed that---to no small degree---contributed to the great credit/real estate bubble of the mid-OOs was keeping interest rates "abnormally" low for "abnormally" long (I know, what's normal?). But the doves truly believe that they've saved the world by resorting to virtually the same policies that virtually destroyed the bloke's 401(k)..... (actually the bloke virtually destroyed his own 401(k) by panicking and selling when he should've been doubling his contribution).
I can't help but wonder where we'd be today if the Fed had accommodated to a far lesser degree---and if the market had been left to deal with certain failed banks and automobile companies. I suspect I'd be sending you a message this morning. I suspect I'd be thinking about how the family and I will enjoy the remainder of the weekend. I suspect I'd be thinking about next week's client meetings. I suspect you'd be thinking about the remainder of your weekend and the heading back to work tomorrow morning. If you're retired, I suspect you'd be thinking about your chores, your travel plans, your grandkid's soccer tryouts next weekend. In essence, I suspect that without the bailouts and a four trillion dollar Fed balance sheet, the world would yet be turning and we'd be very much in business. And the Fed wouldn't be fretting over how the markets will handle it finagling itself out of this mess it's gotten itself into.
Here's the great Milton Friedman on profit and loss: