Wednesday, Mar 15, 2023

Armchair psychology, BTC drivers, inflation respite but not everywhere, and more

“The great enemy of the truth is very often not the lie, deliberate, contrived and dishonest, but the myth, persistent, persuasive and unrealistic.” – John F. Kennedy  ||

Hi everyone! For the history buffs among you, today is the Ides of March. Typically marked by ceremonies to commemorate the new year in Roman times, almost 2070 years ago it triggered a profound regime change with the assassination of Julius Caesar. Thought you’d appreciate the detail. 😊

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MARKET

Armchair diagnoses

Have you noticed how macroeconomics is rapidly fusing with psychology? The focal debate at the moment is: should Powell raise rates by 25bp next week, or should he pause? The former will make the Fed look insensitive and rash. The latter will make the Fed look panicked. I would argue that the interpretations could also be flipped, raising will make the Fed look panicked, while not doing so could make it look insensitive and rash.

Either way, the emphasis is on perception of what the Fed does, rather than what it actually does. This has always mattered, especially when it comes to inflation – perceptions change behaviour, and expectations of high inflation in theory bring spending forward, exacerbating that very inflation. But it seems to matter more than ever now, as we all ask ourselves, “how is Powell feeling today?” Of course, only his friends and family are probably aware of the real answer to that, so the rest of us are left looking for signs, which makes us all armchair psychologists.