FOMC week is upon us, with the Fed rate decision on Wednesday. A central question will be how Powell reacts to the number of rate cuts currently priced in for 2024 and perhaps more specifically how he addresses the possibility of a March rate cut. Friday's PCE report, while showing a higher MoM index reading than the month prior, painted a picture of strong consumer spending with continued disinflation.
On the week ahead: Tuesday: JOLTS, Wed: ADP, ECI and FOMC, Thur: Jobless claims, ISM mfg, Friday: Jobs Day in 'merica
As we wait on the Fed, so much of what the Fed seems to do today is
verbal suasion, they try to influence with words and ultimately if they follow through they are said to be "credible" (this is important - see below).
While what Powell and the Fed says might matter, recent CFA
research reminds me that what Powell says might be less important than what "finfluencers" on social media say about what what Powell says. Per the research report:
Social media influencers are becoming a key vehicle to promote products and services, including in the financial services sector. This development has given rise to the neologism “finfluencer” (financial influencer). Finfluencers represent a new intermediary between
financial institutions and consumers. They provide general investment information, promote investment products, offer guidance, and, in some instances, make investment recommendations. It is often unclear whether finfluencers are authorised to conduct regulated activities; however, they have become an important source for young investors—particularly those aged 18–25, who are part of Generation Z—to access investment information.
While social media is definitely a relatively new phenomenon, the challenges of poor information, disinformation, etc. is anything but new. In fact you could argue it is an inevitability of becoming "civilized", at least economist and philosopher John Stuart Mill considered this inevitability to be the case all the way back in 1836 in his essay titled "Civilization". Mill defined "civilized society" by contrast to barbaric or rude society;
"We accordingly call a people civilized, where the arrangements of society, for protecting the persons and property of its members, are sufficiently perfect to maintain peace among them; i.e. to induce the bulk of the community to rely for their security mainly upon social arrangements, and renounce for the most part, and in ordinary circumstances, the vindication of their interests (whether in the way of aggression or of defence) by their individual strength or courage."
Mill argues that the attainment or advancement to a civilized state requires a diffusion of property and knowledge, combined with the power of cooperation. However, Mill recognized some consequences that come from obtaining and growing civilized society, including that "the importance of the individual, as compared to the masses, sink into greater and greater insignificance." [Side bar: Professor and author Dr. Michael Muthukrishna in discussing his book, A Theory of Everyone, posits that one of the pivotal moments towards what he calls "the securitization of trust" necessary in fostering the diffusion of property and knowledge was the Catholic Church banning cousin marriage. He sees this as largely ending kinship based tribalism, which further leads to humans learning to cooperate and build trust beyond the familial structure.]
What does any of this have to do with "finfluencers" and the Fed? Well, Mill understood that "When the masses become powerful, an individual, or a small band of individuals, can accomplish nothing considerable except by influencing the masses; and to do this becomes daily more difficult, from the constantly increasing number of those who are vying with one another to attract the public attention." Consequences of which included in Mill's words:
- The individual becomes so lost in the crowd, that though he depends more and more upon opinion, he is apt to depend less and less upon well-grounded opinion; upon the opinion of those who know him.
- There has been much complaint of late years, of the growth, both- in the world of trade and in that of intellect, of quackery, and especially of puffing: but nobody seems to have remarked, that these are the inevitable fruits of immense competition; of a state of society where any voice, not pitched in an exaggerated key, is lost in the hubbub. Success, in so crowded a field, depends not upon what a person is, but upon what he seems: mere marketable qualities become the object instead of substantial ones, and a man's labour and capital are expended less in doing anything, than in persuading other people that he has done it
- It is our own age which has seen the honest dealer driven to quackery, by hard necessity, and the certainty of being undersold by the dishonest. For the first time, arts for attracting public attention form a necessary part of the qualifications even of the deserving: and skill in these goes farther than any other quality towards ensuring success
- It corrupts the very fountain of the improvement of public opinion itself; it corrupts public teaching; it weakens the influence of the more cultivated few over the many
- The world reads too much and too quickly to read well
- when almost every person who can spell, can and will write, what is to be done? It is difficult to know what to read, except by reading everything; and so much of the world's business is now transacted through the press, that it is necessary to know what is printed, if we desire to know what is going on. Opinion weighs with so vast a weight in the balance of events, that ideas of no value in themselves are of importance from the mere circumstance that they are ideas, and have a bonâ fide existence as such anywhere out of Bedlam
While Mill expressed concerns over civilization causing a loss of individual energy (loss of courage, work ethic, patience, etc.) and a weakening of the influence of superior minds, he believed that the answer wasn't to limit diffusion of knowledge, but to establish counter-tendencies by further perfecting means of cooperation and reforming education and politics.
The problems of Mill's 1836, seem quite similar to some of the problems of our current day and some of the reforms he discusses seem eerily similar to some debates around higher education today.
So what's the lesson? Perhaps it is that when listening to Powell this week, take a longer view. The Fed is part of a fabric of institutions that have been developed over time to help "securitize trust" and foster societal cooperation. If you believe that societal cooperation solves problems and makes a better world, then what the Fed does with 25 or 100 basis points here or there over the next month or year is likely far less relevant than whether you believe that in the long-run, institutions like the Fed, remain somewhat credible in fostering a stable environment for businesses to solve problems. If you think that over time our ability to remain civilized holds, then it's a case for optimism, a topic I mentioned here.
XTOD: Doing less meaningless work, so that you can focus on things of greater personal importance, is NOT laziness. This is hard for most to accept, because our culture tends to reward personal sacrifice instead of personal productivity. Let’s define “laziness” anew—to endure a non-ideal existence, to let circumstance or others decide life for you, or to amass a fortune while passing through life like a spectator from an office window. The size of your bank account doesn’t change this, nor does the number of hours you log in handling unimportant e-mail or minutiae. Focus on being productive instead of busy.
XTOD: the spouses of the very rich are the dark matter of american politics
XTOD: Taylor Swift performs in Japan the night before the Super Bowl. It will end around 10pm Tokyo time (5 am Las Vegas time). The flight from Tokyo to Vegas takes 12 hours, meaning Swift can arrive at 5pm local on the day before the Super Bowl, 25 hours, 35 mins before kickoff.
