• Posted on April 18, 2024
  • by MI2 Research

“I think the monetary policy is doing exactly what we like to see over time”

It’s natural to feel ill at ease when the status quo begins to shift. Is it too quiet out there? Is there a hint of smoke mixed in with the smell of baking cookies? Is it a coincidence that several articles (Bloomberg and the FT) have recently appeared questioning whether an elevated Feds Fund rate might actually be stimulative? The cynic in us can’t help but wonder if those articles arose naturally or were planted, and if the latter, who did the sowing? It’s certainly true that we struggled a bit to see the economic weakness that Fed officials saw when they suggested late last year that rates were likely to be cut (is this “recession” in the room with us now, Jay?). We are definitely overthinking it, although Fed officials did seem inexplicably keen to ease.

Of course, the notion that high rates might be stimulative is a very clear heresy of economic orthodoxy and in direct contradiction to the argument that the current “stance is restrictive”. A tough box to get out of. That said, we are tickled by the idea of Erdogan as an economic “thought leader”. It turns out that even in the stodgy, clubby world of economics, the Overton window can still shift.

The latest flurry of Fed speak has been a broad recanting of the previously guaranteed, 100% for sure, cuts this year, with members saying, “I definitely don’t feel urgency to cut rates”, “I’m not in a mad dash hurry to get there[, to lower rates]”, and “at some point, … we will start to normalize policy back to a less restrictive stance [ed. Ha!], but we don’t have to do that in a hurry”. It’s nice to be vindicated. But now what?

Switching gears slightly, in The Sign of the Four, Holmes reminds Watson that “when you have eliminated the impossible, whatever remains, however improbable, must be the truth”. Having noted Ernie Tedeschi’s interesting hypothesis about the potential for immigration (illegal and otherwise) to be the reason for the discrepancy in the various jobs reports, we are beginning to wonder if it could also help explain some of the other curious dynamics we are seeing in a variety of markets. The curiously strong bid under rents? The latest hot retail sales? And the absence of wage pressure despite optically tight labor markets? Occam’s razor (aka the “principle of parsimony”) suggests it should be given serious consideration.