The performance and the non-message message
“They knew many things but had no idea why. And strangely this made them more, rather than less, certain that they were right.” – Neal Stephenson ||
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Markets: the performance and the non-message message
Term of the day: Baumol’s cost disease
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Markets: the performance
Well, that was disappointing.
Not that the FOMC chose to keep the US federal funds rate steady – I thought they should hike, but had low confidence they would.
Rather, it was disappointing because I expected a lively press conference. It was one of the most boring I remember, and that’s saying something.
Before we get into the impact of the message in the non-message, a recap: the FOMC decided to keep the federal funds rate at current levels between 3.50%-3.75%, and three voters dissented.
It was widely expected there would be dissents, but three is a lot. True, April’s meeting had four, but only one was on the rate decision (Miran wanted to lower rates), the other three were on the language of the statement. Removing that, there have been only four FOMC meetings with three dissents in the past 10 years.
(chart via Bloomberg)
As Jim Bianco put it, “dissents are the new forward guidance”.
Given the uncertainty regarding the FOMC’s position going into the meeting, the market showed some muted relief that the committee was not worried enough about overheating to raise rates – the S&P 500 jumped and bond yields fell, but just a little bit.
Then came the press conference.
This turned out to be a masterclass of how to say virtually nothing.
We got a lot of emphasis (and I mean a lot) on how committed the committee is, how competent and dedicated etc. How they’re thinking deeply about things, including how to think about things. How they will get the job done but won’t tell us how because they’re thinking about things.
Let’s just say that Warsh is very good at press conferences, better than most politicians, eerily good for a central banker. He’s deft at going through the motions of answering questions while repeating his honed message, deflecting, creating a personal rhetoric. He has the charm and the oration down pat – addressing journalists by their names, using graceful yet emphatic hand movements, and most of the press corp seemed to love it.
But not all.
