Stocks were up after the Federal Reserve issued its statement Wednesday at 2 p.m. announcing a decision to raise its interest rate target by .25 of a percentage point; the markets only sank after the Federal Reserve chairman, Jerome Powell, started talking at the press conference he gave starting at 2:30 p.m. Maybe pay more attention to what the Federal Reserve did and said in its unanimously approved statement than to Powell's spin? Or maybe Powell should skip the press conference next time.
I went for a walk afterward and saw a neighbor unloading a bag of golf clubs from the trunk of his car. It reminded me of the 3-6-3 rule of banking back in the pre-deregulation days—take depositors' money at 3 percent, lend it out at 6 percent, and be at the tee at 3 p.m. Those days are over, and I wouldn't want them back, but the idea of going golfing instead of hanging on every word from Powell has a certain wisdom to it, especially for long-term investors.
Any time there is unanimity on such a high-stakes decision there is a risk that groupthink has set in. It did confirm part of what I wrote Tuesday in "Jerome Powell's Pillow Talk," which was, "Think of the Federal Reserve chairman as like Chief Justice Roberts — less concerned with the precise outcome or even the legal fine points, and more worried about avoiding 5-to-4 splits, so that the court does not appear partisan and retains its respect among the public and institutional independence."
Perhaps Powell figures it's easier to pause or cut at some future meeting if economic conditions worsen than it would be to try to tamp down inflation again after taking an easier stance than Larry Summers was advising.
The reporters love the press conferences because they get their names called and get to be on television. In this case, though, the more Powell talked, the less confident investors seemed to be about the future earnings of American companies.
Powell is a lawyer not an economist by training, but Hayek's 1974 Nobel lecture seems appropriate: "the economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things."
