It is almost December 23rd and that means that Festivus is nearly upon us. (Actually, Festivus is floating holiday that can be observed whenever one chooses to.) It is traditional on Festivus to air one’s grievances. Among the many, one of my grievances this year with the Fed is that it talks too much – talks too much about things of which it does not know. By talking too much, the Fed adds unnecessary volatility to the global financial markets.
It was not always this way. In fact, there was a time when I believe the Fed talked too little. In 1986, I transitioned from being an economist at the Chicago Fed to becoming a so-called Fed-watcher at The Northern Trust Company. Back then, about the only thing the Fed publicly announced about current and future monetary policy was the dates of its Federal Open Market Committee (FOMC) meetings. If the FOMC decided at a meeting to change the desired level of the federal funds rate, it did not reveal this to the public. One of the tasks of a Fed-watcher was to divine whether the FOMC had changed its target federal funds rate. If the federal funds rate were trading somewhat above its pre-FOMC-meeting level in the days following the meeting, how did the New York Fed trading desk respond? Did it execute overnight repurchase agreements, term repurchase agreements, outright open market purchases of securities, do nothing or exercise the “nuclear” option, by executing a matched-sale-purchase agreement (today known as a reverse repurchase agreement). These different open market operations might, or might not, have different implications regarding the FOMC’s federal funds rate decision at its latest meeting. It might take several days for us Fed-watchers to determine the FOMC’s decision. And sometimes we, collectively, got it wrong. Similar to a tree falling in a forest without anyone hearing it, what if the FOMC changed its target level of the federal funds rate and Fed-watchers did not discover it? I always thought that this unnecessary secretiveness on the part of the Fed was a Fed tool to provide full employment for economists. Finally, beginning in 1994, the FOMC began announcing changes in its policy stance, and in 1995 it began to explicitly state its target level for the federal funds rate. Miraculously, many of us Fed-watchers managed to stay employed. We could now devote more of our time to trying to discern the implications of the FOMC’s latest change in the federal funds rate for the behavior of the future behavior of the economy, both in real and nominal terms, of future interest rate levels and of future foreign exchange rates. Even with the extra time available for this, we were not very good at this. But most of us continued to stay employed in our chosen profession!
Now, the chairperson of the Fed holds a press conference immediately after the adjourning of an FOMC meeting. The chairperson talks about all manner of things entering into the FOMC’s policy decision. Not only does the chairperson announce the FOMC’s current target federal funds rate level, but also the FOMC’s expected future path of the federal funds rate. I believe it is a Herculean task to identify the “correct” current level of the federal funds rate, much less the “correct” future level of the federal funds rate. In between FOMC meetings, there can be as many as 19 Fed officials – 7 Fed Board governors and 12 Fed District Bank presidents – commenting on current and expected future monetary policy decisions, not all of whom are singing from the same hymn sheet. The current surfeit of Fedspeak brings to my mind the 1960 pop tune performed and co-written by Joe Jones, “You Talk Too Much” (check it out on YouTube). With apologies to Joe Jones and Reginald Hall, I have substituted my lyrics with Fed references to their song below.
The Fed Talks Too Much
Lyrics by Paul Kasriel
To the melody of “You Talk Too Much”
You talk too much.
You worry markets to death.
You talk too much.
Why don’t you save your breath?
You just taw-aw-aw-aw-aw-awk,
Talk too much!
You talk about a neutral rate
That you don’t know.
You talk about a soft landing
Wherever you go.
You just taw-aw-aw-aw-aw-awk,
Talk too much!
You talk about max employment
That you can’t define.
You talk about a terminal rate
That changes all the time.
You just taw-aw-aw-aw-aw-awk,
You talk too much.
You talk about transitory inflation
And then your views shift.
You talk about anchored expectations
And then they begin to drift.
You talk too much.
You worry markets to death.
You talk too much.
Why don’t you save your breath?
You just taw-aw-aw-aw-aw-awk,
Talk too much!
Well, I have brought the aluminum Festivus pole up from the basement. It is made of aluminum because of its high strength-to-weight ratio. And the clock in the bag is hung on the wall. Why is a clock in a bag hung on a wall? No one really knows. It’s just an ancient Festivus tradition. So, it is time to gather around the pole, lift a glass of single-malt scotch, (Lagavulin, if you are thinking of a present for me) and join in the singing of “O Festivus”. Remember, Festivus is not over until Chairman Powell pins me.
O’ Festivus
Lyrics by Katy Kasriel
To the melody of O’ Tannenbaum
O’ Festivus, O’ Festivus,
This one’s for all the rest of us.
The worst of us, the best of us,
The shabby and well-dressed of us.
We gather ‘round the ‘luminum pole,
Air grievances that bare the soul.
No slights too small to be expressed,
It’s good to get things off our chest.
It’s time now for the wrestling tests,
Feel free to pin both kin and guests,
O’Festivus, O’ Festivus,
The holiday for the rest of us.
And a contentious Festivus 2022 to all.
Note: I asked ChatGPT to write lyrics for “The Fed Talks Too Much” and “O’Festivus”. In my opinion, the results fell short of versions written by lyricists Katy and Paul Kasriel. But why don’t you give ChatGPT it a try and judge for yourself?
Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
