Is Raising Interest Rates A Sign Of Resilient Thinking?

Major leadership actions or decisions are natural moments to display and deploy resilient thinking. In fact, often the difference between successful vs. unsuccessful outcomes comes down to whether the key aspects of resilience psychology are evident in the reasoning. For example, on March 16, the Federal Reserve board announced their decision to raise its key interest rate by a quarter of a percentage point. Is this a resilient move or a common mistake of unresilient thinking: an overreaction to threat? I look at the steps the Fed has taken, the data they are reacting to, and the reasoning they offer, and see this as a highly resilient display of realistic optimism. Realistic because rate increases have historically reduced spending and slowed down the economy. Yet optimistic, because they believe that our economy can overcome temporary pain to ultimately rebound and be stronger. Looking past the near term effects of rising interest rates but remaining optimistic that in the long run consumers and businesses will increase spending signals resilience.

The science behind what makes people resilient shows us that optimism—specifically realistic optimism—is key to successfully managing through challenges, from small to gargantuan. Realistic optimists find paths to positive outcomes without ignoring the hardships and risks along the way. They are skilled at looking beyond the bright side —that’s unrealistic—focus on their objective and also any obstacle that might stand in their way. In fact, staying optimistic about the long game, while being willing to undertake hardship in the short run, is typically key to success in managing through adversity.

U.S. Navy Admiral James Stockdale, who had been a prisoner of war in North Vietnam for seven years, famously said, “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

Realistic optimists make the greatest world leaders—Volodymyr Zelenskyy comes to mind right now—along with successful business leaders. Why? Because they hold both what might be and what has to happen to get there in their minds at the same time.

The members of the Fed are exemplars of realistic optimism, demonstrating many of the cognitive skills that define resilience: Empathy, problem-solving, impulse and emotion control. Resilient people right-size problems and realistically assess causes and outcomes. Undoubtedly there will be short-term effects that may challenge individuals and companies, but the Fed expects our economy to prevail in the end.

Like all resilience skills, realistic optimism can be learned; it’s not some kind of inherent trait. But it does require letting go of some deep-seated thinking patterns. For example, people tend to be much more alert and reactive to threats than to opportunities. Far from looking on the bright side, we tend to fear the worst. And getting a grip on those tendencies takes some practice: research shows that 90 percent of our emotions are misguided—either they don’t match the situation or they arise due to faulty thinking and misperception.

As business leaders, it’s a critical time to be—or to become—realistic optimists. We can look at the corporate response to conducting business in Russia through this lens. It has been very painful in the short term to halt doing business in Russia; to the bottom line and for the workforce in Russia, but it is in the service of a long term objective of a rules based order. Our workforces are feeling the piling-on of uncertainty and even grief. We need to help them see a path to better times without downplaying the reality of this moment. That’s realistic optimism. It’s resilience. And it’s leadership.

What can leaders learn from this:

1. Take a hard look at reality; it is essential to long term positive outcomes.
2. Look at short term issues with a long term perspective.
3. Help your workforce adapt to necessary change.

Resilient leadership means taking the long view, accepting short term stress for the long term and great good, and believing in the power of belief and discipline. In these dark, challenging days, it is inspiring to see signs of resilience on the world stage.