Over the Weekend: Fed Drama Queens Act Out

Doesn't it seem like the Fed wants to be that star of the show - all the time? This weekend San Francisco Fed President, John Williams, took center stage. "Looks like" the Fed will raise rates in December. It was such a close call in October. Ah, the drama of it all. Come to think about it, it does seem like these folks are morphing from supposedly smart, sophisticated pooh-bahs of the economy and financial markets into out and out drama queens, doesn't it?

You sometimes read or hear frustration on the part of the folks in the investment community: "C'mon, either get on with raising rates, or just shut up." Others appear to enjoy the drama. It's likely they find the back and forth good opportunities to get their name out there and opine about how the Fed's action will impact their overall strategy. Maybe they're drama queens too.

All this acting out masks what has been an essentially flat market since the stock market bounce from the lows in October, and gold's plunge through support in November, the only two events of any significance lately. The long bond, having corrected, has settled, along with its confreres, into a range that makes us all watch and wait for what comes next.

Hey, have the markets now become drama queens too? Hold on a minute. Volatility in markets isn't something new. They're just being markets. It's the Fed folks, and they're financial expert followers who've appeared to take a liking to the theatrical.

Back to Williams comments. I found this interesting:

“Since the economic data can surprise on the upside and the downside, maybe there will be some opportunities for us to show that we’re data-dependent by moving a little slower or a little more quickly,” Williams said. “I do worry because of the episode of the mid-2000s of locking ourselves in, just because we did something two or three times in a certain way.”

So we're supposed to get the impression that Fed is always learning on the job, right? They won't make the same mistake they made in the mid-2000s. Ah, so soothing to hear, isn't it? But wait, what's this? Williams - perhaps sensing that he might be viewed as more actor than expert, wants us to know that these folks are "data-dependent." Sounds impressive, right? It's meant to: scientific and/or mathematical; certainly not theatrical. Of course, data-dependency means that they're looking back, into the past, and making decisions about the future strictly based on what happened, oh, weeks, more likely, months ago. For example, this:

“...the data, I think, have been overall encouraging, especially on the labor market. The data show that the hiccup we saw in a couple of labor reports has reversed...”

Setting aside any dispute you may have with this comment - and it is disputable - employment is a lagging indicator. For example, during the 2007-2009 financial crisis, it wasn't until 2009 that the employment data collapsed and told us what we already knew: disaster had struck. The data was, to put it mildly, behind the curve. So, come again, how is being data dependent supposed to give us more confidence in your decision-making process? You're going to make decisions that will move markets and possibly the economy and hang your hat on data more than you did in the past? Somehow it's not making me feel warm and fuzzy.

In any case, we begin a new week - Thanksgiving week in fact - with more on our minds than markets. Family and friends, good food and drink, and all that. Now that's warm and fuzzy.