Yellen’s Murky, Misdirecting Congressional Testimony
If you think hedging is something only investors and gamblers do, you haven’t sat through the speeches of too many economists. Don’t despair. A traditional joke about economists – and there are many – aptly illustrates what their shadowy science is all about, “How many economists does it take to change a light bulb?” Answer? “Seven, plus or minus ten.”
In a speech yesterday before the House Financial Services Committee, Fed Chair Janet Yellen left House members with unclear and unsatisfying answers to their questions. (“Seven plus or minus ten” at least offers an answer with defined boundaries.)
At the close of the session, Representative John Delaney, D-Md, tried to zero in on the Fed’s carefully implied intention to raise rates if it detects evidence of moderate growth. He then asked whether their economic outlook has been adjusted downward. Yellen’s underwhelming response was, “The answer is maybe, but the jury is out.” She then said the Federal Open Market Committee (FOMC), the Fed’s monetary policymaking body, would have to evaluate more data. You have to wonder what’s going on when she can’t even commit to “Maybe.”
But this is the kind of answer we’ve come to expect from our central bankers. Yellen couldn’t or wouldn’t give a real answer, so now Congress, Wall Street and the press get to shoot dice in the dark about which direction the Fed will steer the nation when it convenes again in March.
While Yellen’s two-step rarely approaches the skillful buck and wing of the legendary Alan Greenspan, who immortally characterized the frenzy preceding the 2000 dot-com crash as “irrational exuberance,” she’s had her moments. One of these occurred during her 2014 Congressional testimony, when she made this cryptic observation, “Equity valuations of smaller firms as well as social media and biotechnology firms appear to be stretched, with ratios of prices to forward earnings remaining high relative to historical norms.” Yes, Janet, Facebook’s stock price does seem high…
Clearly, one of the qualities a Fed Chair needs to keep his or her job is just enough condescension to keep congress guessing without making them angry, and an ability to speak and write opaque econo-speak. Their stated motive for the gobbledygook is that they don’t want to throw the markets into a tizzy by speaking plainly, which begs the question, “If what you’re trying (not) to say is so potentially explosive, exactly what kind of trouble are we in?”
But it turns out all that Fed-speak has an additional purpose. With the benefit of hindsight, the thinly veiled message behind Yellen’s and her predecessors’ words seems to be, “Don’t ask us what we’re going to do, because we don’t know what we’re going to do until we do it.”
The problem with such brinksmanship is that the Fed needs to evaluate data from Wall Street and the global financial community before it acts; but the latter two need to know what the Fed’s going to do before they act. As a result, everybody comes too late to the dance, which quickly turns into a melee. So with continued market mayhem abroad and at home, and no leadership in sight, I’m taking more and more of my funds off the dance floor.
You and I have no idea whether the Fed will continue to raise rates, whether oil prices will recover, and where in Sam Hill stock prices will be tomorrow, next week or in the next few crucial years as we prepare for retirement. It’s precisely because we don’t know any of this that we need to take a firm hand in stabilizing our own portfolios and, as much as possible, market-proofing them. As a tangible asset historically proven to hold its value and, crucially, preserve the buying power of your retirement savings, gold is a constant we can rely on when the real financial and market facts reach us too late.