Index Investing News
Saturday, May 24, 2025
No Result
View All Result
  • Login
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion
No Result
View All Result
Index Investing News
No Result
View All Result

The Fed as social psychologist

by Index Investing News
April 19, 2023
in Economy
Reading Time: 2 mins read
A A
0
Home Economy
Share on FacebookShare on Twitter


During 2020, public health authorities occasionally put out false or misleading information, or delayed useful innovations, based on armchair theories about how the public reacts to risk and uncertainty. I recall pundits like Alex Tabarrok and Tyler Cowen pointing out that public health authorities are generally not experts on social psychology, and thus should not try to micromanage the public’s mood.

A similar problem can occur with monetary policy.  A new paper by Michael Bauer and Eric Swanson cites a recent example:

For example, in the minutes of the FOMC meeting on March 15, 2020, participants were concerned that a strong monetary easing surprise “ran the risk of sending an overly negative signal about the economic outlook.”  [p. 55, footnote]

I’ve spent much of my life studying market reactions to monetary policy news, and have the strong impression that the markets are much more worried about what the Fed doesn’t know than what it does know.  Both the Fed and the markets have pretty similar information regarding macroeconomic aggregates and asset market price movements.  The biggest problems arise when the Fed has the wrong model, and makes a decision that market participants view as likely to lead to a negative outcome for the economy.  Lots of these bad decisions occurred in the early 1930s, and again in late 2008.  The fear isn’t that a rate cut will expose an already weak economy, it’s that the Fed won’t cut rates when it’s clear to market participants that a rate cut is appropriate.

The preceding is based on my reading of monetary history, not a rigorous study of the data.  But Bauer and Swanson have done such a study and also conclude that the Fed should simply do the right thing, and not second guess how markets will react to their moves:

Our results also have important implications for central bank communication and the conduct of monetary policy. First, along with Bauer and Swanson (2021), we find little or no evidence that FOMC announcements have a substantial “Fed information effect” component. Although the minutes of recent FOMC meetings reveal that some participants worried about the potential for counterproductive information effects, our results indicate that policymakers have little need to fear that information effects might attenuate the effects of their announcements, except possibly in exceptional circumstances (which our results cannot rule out).  [p. 55]

The Fed should focus on doing the right thing, and not try to second guess how the market will interpret sound monetary policy.

 

 



Source link

Tags: FedpsychologistSocial
ShareTweetShareShare
Previous Post

Fox: Fox settles Dominion lawsuit for $787.5 million over US election claims

Next Post

Tesla Earnings Are Coming. Watch What Elon Musk, Management Says.

Related Posts

Greenback notches greatest weekly drop since tariffs sell-off over US debt fears

Greenback notches greatest weekly drop since tariffs sell-off over US debt fears

by Index Investing News
May 24, 2025
0

Unlock the Editor’s Digest totally freeRoula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.Investor jitters...

Joe Weisenthal on jobs and migration

Joe Weisenthal on jobs and migration

by Index Investing News
May 23, 2025
0

I noticed an attention-grabbing tweet by Joe Weisenthal, discussing the query of what determines interstate migration: That is the traditional...

What EU exports are hit hardest by Trump’s 50% tariff risk?

What EU exports are hit hardest by Trump’s 50% tariff risk?

by Index Investing News
May 23, 2025
0

Donald Trump’s risk to impose a 50 per cent tariff on all exports from the EU would ship a hammer...

MiB: Ron Shaich, Au Bon Ache, Panera Bread & CAVA

MiB: Ron Shaich, Au Bon Ache, Panera Bread & CAVA

by Index Investing News
May 23, 2025
0

    This week, I communicate with Ron Shaich, co-founder of Au Bon Ache and founder and former chairman and...

Murphy on Financial Philosophy – Econlib

Murphy on Financial Philosophy – Econlib

by Index Investing News
May 24, 2025
0

Kevin Corcoran Barry Lam's Fewer Guidelines, Higher Folks: The Case for Discretion raises quite a few fascinating arguments, and I...

Next Post
Tesla Earnings Are Coming. Watch What Elon Musk, Management Says.

Tesla Earnings Are Coming. Watch What Elon Musk, Management Says.

North Korea touts new spy satellite — RT World News

North Korea touts new spy satellite — RT World News

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

RECOMMENDED

Morgan Stanley (MS) Q1 2025 earnings

Morgan Stanley (MS) Q1 2025 earnings

April 12, 2025
Jenelle Evans Cries & Claims Her Mom Barbara ‘Took’ Son Jace – Hollywood Life

Jenelle Evans Cries & Claims Her Mom Barbara ‘Took’ Son Jace – Hollywood Life

October 23, 2022
Liz Truss resignation: Why the UK always seems to be in political crisis

Liz Truss resignation: Why the UK always seems to be in political crisis

October 22, 2022
SBF says Sullivan & Cromwell contradicted itself with insolvency claims

SBF says Sullivan & Cromwell contradicted itself with insolvency claims

January 18, 2023
Wall Avenue desires to denationalise extra of your cash in market correction

Wall Avenue desires to denationalise extra of your cash in market correction

March 31, 2025
Hilary makes landfall over Baja California peninsula, set to pummel US Southwest By Reuters

Hilary makes landfall over Baja California peninsula, set to pummel US Southwest By Reuters

August 20, 2023
Court orders Netherlands to halt delivery of fighter jet parts to Israel | Israel War on Gaza News

Court orders Netherlands to halt delivery of fighter jet parts to Israel | Israel War on Gaza News

February 12, 2024
20 Reasons To Be ‘Mega Bullish’ On XRP: Crypto Analyst

20 Reasons To Be ‘Mega Bullish’ On XRP: Crypto Analyst

October 10, 2023
Index Investing News

Get the latest news and follow the coverage of Investing, World News, Stocks, Market Analysis, Business & Financial News, and more from the top trusted sources.

  • 1717575246.7
  • Browse the latest news about investing and more
  • Contact us
  • Cookie Privacy Policy
  • Disclaimer
  • DMCA
  • Privacy Policy
  • Terms and Conditions
  • xtw18387b488

Copyright © 2022 - Index Investing News.
Index Investing News is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • World
  • Investing
  • Financial
  • Economy
  • Markets
  • Stocks
  • Crypto
  • Property
  • Sport
  • Entertainment
  • Opinion

Copyright © 2022 - Index Investing News.
Index Investing News is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In