The Toddler

Wall Street is a giant toddler.

If you tell a toddler that you cannot have candy today, the toddler interprets that as not getting candy for the the rest of imaginable time. Then comes the tantrum and the wild bawling, which to a bystander seems rather ridiculous. But then they always shrug it because toddlers will always be toddlers.

Today the Federal Reserve Chairman announced that we are very close to the range of normal interest rates. A couple of months ago he had said that we are far from normal rates. While these two statements seem to be at odds, on a closer looker it may not be.

What changed in the last couple of months however, is a market that threw a fit, kicking and screaming about how it was so unfair that the fed was embarking on a path of rate increases and how all this would accelerate a recession. Our esteemed President also took a few shots at the man in the hot seat as well and in true Trump style all the shots came with a fair amount of exaggeration and separation from truth. So much like a toddler yelling and screaming at mom for all the ills in the toddlers life was well underway.

The market loved what it heard today, but was it that different? The Chairman said that we are close to the RANGE of the normal and the Fed will be data dependent going forward. For those listening closely, this is what the Fed has been saying since 2009. But how do you get through to a 4 year old? Both toddlers, the one of Wall Street and the one on 1600 Pennsylvania Avenue. So Powell did what every mom does to handle a toddler. She soothed her words to a tone that the toddler wants to hear while still maintaining her stance and pretending to meet the toddler half way while also threatening of dire conditions if discipline is not maintained.

Close to the range means nothing. The range is 2.5 to 3.5% and we are at 2.25%. Powell just said we are close to the range of normal which is what the numbers show. You don't need to be a math wizard to understand that. In October when he said we have a long way to go, that was from 2.25 to 3.5%. Did he really say anything new today? Not really. He said he will be data dependent on his way to 3.5%. Which was said at that time too.

But the last two months would have taught Powell one thing. Never tell the toddler anything until absolutely necessary, simply because the toddler is incapable of handling nuanced statements. So mom is going to show candy only when she thinks the toddler is ready to eat it.

We have come a full circle, when the market wanted a transparent Fed in the depths of the financial crisis to now - not so much. And in true toddler style of ignorance is bliss, the toddler cheered on with a rally.

So welcome to a less transparent Federal Reserve. Can you blame it for turning motherly on us?


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