Have you ever been on a long drive down a bumpy road?
As a newly-minted driver some umpteen years ago, I never understood why my parents always told me to slow down while driving on roads that got a little rough. It felt fine to me. To be honest, the chop and rattle could be a little exhilarating, a break from the monotony of long, straight, flat highways in the Midwest.
But now that I’m a little older and my joints and back get sore a little more easily and my wallet is a lot lighter from paying all thost repair bills, I’m the one telling my kids to take it easy, don’t be in such a rush, we’re not in an action movie. Things break when they get banged up, and the destination will still be there whether we get there in an hour or an hour and a half. Just. Slow. Down.
It seems that’s what the market is telling the Fed right now. What’s the hurry? We know that Fed wants to get rates back to “normal.” But monetary policy acts with long and variable lags. The Fed raised rates four times this year and Chairman Powell recently said they expect to raise rates twice more next year. While he indicated some that they want to listen to the data going forward, the markets have been noting, commenting, shouting from the back seat, “Listen to us: slow down!”
One of the things new drivers don’t understand is how powerful a car really is. When you drive, you’re directing a two-ton projectile at highways speed. New Fed Chairs also tend to underestimate their power. They were academics, or investors, or analysts in in their previous life, not superheroes with superpowers. But the Chairmanship has transformed them. They’re setting the price of money in a $20 trillion economy. That’s a of economic muscle.
Muscle Car. Photo: Karl Freese. Source: Wikimedia
As a young driver, after I hit a few potholes and rattled my passengers’ bones, I slowed down. Let’s hope the Fed listens to its passengers.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”