Rare Birds

Has Fed-watching become as arcane as bird watching?

Several years ago hundreds of enthusiasts traveled to Arkansas to capture a glimpse, or photograph, of the Ivory Billed Woodpecker, a species once thought extinct. In the same way, hundreds of Fed-watchers were on hand Monday to hear what Chairman Bernanke had to say to the Economic Club of New York.

And what did he say? That the economy is growing slowly, and that the Fed will be on hold for a while; absolutely nothing of note. Oh, he did make a passing reference to the Dollar, noting that the Fed would “continue to monitor” the greenback’s moves.

On that little aside the currency markets started to go nuts, bouncing up and down about one percent in the course of 90 minutes. At the end of the day, the Dollar ended up pretty close to where it started. But during the speech, the market was moving.

What does this tell us? First, the personality cult that attended the Greenspan Era hasn’t abated. In spite of the demonstrated fallibility of fine-tuning an economy based on a single person’s judgment, we seem ready to do it again.

Second, markets are looking for a reason to panic. The Fed’s zero-interest-rate policy has spawned a lot of investment schemes. When the Fed changes course, we’ll be in for some short-term volatility. But then it will probably be back to business-as-usual.

Douglas R. Tengdin, CFA
Chief Investment Officer
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