Facade of the Marriner S Eccles building of the United States Federal Reserve, on a bright and sunny day in Washington, DC, United States, July 24, 2017. (Photo by Smith Collection/Gado/Getty Images)
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Markets are information. They’re constantly pricing the known and unknown, with “markets” a perfectly apt descriptor since no one agrees about the knowns and unknowns.
Consider this with Hoover Institution visiting fellow Mickey Levy’s recent assertion that “The Fed should ignore what markets (and the president) want and carefully consider the risks of lowering rates.” Most of us can’t figure out the desires of the next door neighbor, but Levy knows what markets want? Hopefully readers see in the question the folly of Levy’s suggestion of a monolithic quality to the markets. They’re the embodiment of disagreement.
From there, and assuming for a second that what’s not true is in fact true, that the Fed can create cheaper or more expensive credit by decree, it’s not unreasonable to point out that what Levy imagines to be true isn’t. “Markets” want the Fed to cut, but Levy implies markets and the president are stupid. Hmmm. Both?
It raises a question: would apartment owners, butchers, and Ferrari dealers like to attain fair market value for what they bring to market, or not? The question raises more questions about what Levy could possibly mean. He’s associated with Hoover, an institution that leans in favor of market forces free of government meddling. Which means Levy and his colleagues would likely nod along to the comment that if New York City’s housing authority sets the monthly rental price for apartments at $1,000, the market impact will be a scarcity of apartments.
One guesses Levy et al would agree that what’s true about apartment scarcity would similarly reveal itself if steaks, veal and Ferraris were decreed artificially cheap. Markets always speak, and they frequently speak noisily when governments substitute their limited knowledge for that of the marketplace.
It’s something worth keeping in mind with Levy’s blithe comment about what “markets” want from the Fed. Lest he forget, no one borrows money, rather they borrow what money can be exchanged for: think goods, services, inputs that create goods and services, labor, etc. Which is a reminder that as opposed to being provided by some central authority, credit is produced…in the marketplace.
To read Levy is to imagine he disagrees with the above. That credit is just there, only for central banks to decide how much or how little should be flowing in the economy, and at what price. No, he couldn’t possibly believe that. Maybe he thinks the Fed knows how much or how little credit is inflationary? That’s what he seems to believe, but then why would he want to empower a creation of governments that have overseen so much inflation to protect us from government creations? Wouldn’t those who produce credit, or have access to it, be better at deciding when and when not to offer it?
One guesses Levy would also nod along about the power of compounding, but if so the latter would contradicts his comments about what the “markets” want. Since compounding is so elemental to the health of savers, and if savers are a big part of the market, do they want what Levy imagines the Fed can provide: lower cost credit? Hopefully this question similarly answers itself, or maybe not?
Maybe Levy means the stock market wants lower rates from the Fed, but then stocks soared amid 525 basis points of Fed rate increases that began in 2022, but plummeted in January of 2001 and September of 2007 and beyond amid intense Fed cutting.
So, once again, what do “markets” want? If we knew we’d all be trillionaires because markets are us. Which seems to conclude for us that while markets are knowledge personified, those writing about them really and truly aren’t.