Stocks are down around the world this morning, and market commentators say it is because investors are waiting to hear what Fed Chief Janet Yellen will have to say at the central bank’s annual conference in Jackson Hole. I hate to be the spoiler, but she won’t say anything new.
The market’s excessive obsession with the Fed has deep roots. When the Federal Reserve Bank of Kansas City first gathered central bankers at the Jackson Lake Lodge in August of 1982, Paul Volcker was under public attack for adopting policies that had driven interest rates over 20%. Volcker’s success in conquering inflation gave the Fed an aura of invincibility and respect that lasted through the end of the century, when journalist Bob Woodward penned his book about Alan Greenspan and titled it Maestro.
These days, though, no one calls Yellen “maestro” (or Greenspan, for that matter). Her efforts to be transparent about the Fed’s policies have only left her looking indecisive, promising to raise interest rates and then failing to pull the trigger. The Wall Street Journal’s John Hilsenrath this morning writes that years of missteps – including Greenspan’s failure to forsee the 2008 crisis – have caused confidence in the central bank to plummet, with only 38% of Americans now saying they have faith in the Fed’s leadership, down from the 70% in 2000.
That hasn’t changed the exaggerated emphasis that many put on the Fed’s decisions to make minor adjustments in an interest rate that no real people pay. In an extraordinary meeting yesterday, eleven top Fed officials held a “listening session” with more than 100 labor activists from a group called “Fed Up,” who used catcalls to indicate their opposition to any suggestion of higher interest rates.
But as Paul Volcker showed three decades ago, monetary policy is best not left to plebiscite. And the one thing the economy could use more than anything else these days is a dose of confidence. It’s a shame the Fed has lost any ability to provide it that.