April 4, 2016

In football we see quarterbacks regularly audible, or change the original play, when they think the original idea won’t work. Those who do it often, like Peyton Manning, are often praised for their intelligence because they recognize a flaw and adjust.

Too bad economic policy isn’t football, because maybe then the Fed’s regular interest rate audibles would be viewed as favorable. Instead, it’s more like the quarterback is realizing the playbook is no good.

Let’s review the history – the Fed said it would raise rates four or five times in 2016. Then it went to no raises at all. Then back to four times. And as of this latest meeting, it’s now only twice.

It’s almost like the Fed is hellbent on erring on the side of easy money in hopes of boosting the stock market. Well, the market barely budged on the news. To me, the policy pivots and resulting indifference could mean two things:

  • Financial developments and worries about our economy consume the Fed
  • People realize central banks aren’t with it and monetary policy doesn’t work

Traders’ collective shrugs are a change of pace because of late it seems the market moves on policy instead of revenues and profits. I mean, why care about meaningless stuff like business performance.

Perhaps another factor is elasticity. By that I mean the Fed has used its toolkit to stretch the economy so much that any rebounds are less pronounced.

If this were football, this entire situation would be like calling the same mediocre plays in football and expecting them to suddenly produce greatness. It’s wishful thinking at its worst.

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