Just Who Was The Intended Audience For The Rate Cut?

When these measures were taken at the end of July, at his press conference announcing them Powell declared:

These changes in the anticipated path of interest rates have eased financial conditions and have supported the economy.

It seems as if the FOMC is not data dependent when it comes to its own “easing.” It is assumed that any change so long as it is classified this way will be favorable no matter what. Authorities are not waiting for any evidence to make a reasonable determination one way or another; expectations policy on full display.

And it might be what’s required of rate cuts has more to do inside the central bank. Not only have markets soured this year, so, too, has officials’ collected self-confidence. Late last year, there was talk of the LABOR SHORTAGE!!! at every opportunity, for one example. This year, despite the unemployment rate dropping to a 50-year low it had quietly disappeared.

It is now conspicuously absent from the media’s front pages, and the LABOR SHORTAGE!!! increasingly had been expunged from the Fed’s very own assessments. Given how the labor market is central to their case and outlook, it should be plastered all over official communications.

The Beige Book, for instance, tells us very little about the actual economy but a whole lot about what policymakers think of it. When they were at their hawkish peak in September 2018, the term “labor shortage” appeared almost everywhere in it.

As one market setback after another took hold following last year’s eurodollar landmine, though, the number of its mentions deliberately dwindled. The economy had grown uncertain, sure, but so had the FOMC’s own confidence in it and themselves.

If anything, there is a better case to be made for the rate cuts (and QT’s fate) having sealed the negative fate. The first rule of central banking is don’t make it worse; sometimes that’s all monetary policy can do. If a central banker does something then there must be something serious requiring attention. A policy change might just confirm negative impressions that are becoming firmly entrenched (even the most optimistic optimists see it too!)

The bond market has done a far, far better job of predicting Jay Powell than Jay Powell.

So, here we are with officially a “mid-cycle adjustment” that unofficially isn’t being taken seriously at all. Despite what seems to have been a boost to internal Federal Reserve confidence, this “easing” is still being looked at as the first in a series of likely more panicky responses.

As the benchmark 10-year yield once again closes in on its record low, given history there’s too many good reasons for skepticism about the efficacy of a puppet show especially if it maybe was written and put on for the benefit of its own cast members as much as everyone else.