6. The Blockhead Argument: “The Fed Will Be Forced to Reverse Course Just like Europe Did”
• Not surprisingly, the most frequent months for interest rate cuts are November and December
• This could be explained by the reluctance in risk-taking going into the end of the year and seasonal tightness of funding markets in December
7. The Fed Has Hiked Rates, on Average, More Frequently than It Has Cut Rates
• This has historically been driven by the fact that rates (until recently) have been zero bound
• Also, the so-called “dual mandate” has only been in effect since 1978
• According to the Fed, it could find no reference to “full employment” in its policy directives prior to 20083
8. The Fed Was Nearly Twice as Active in the ’70s and ’80s as It Was in the ’90s and ’00s
• It was also much less predictable in its policy changes during the earlier periods, often alternating between cuts and hikes
• An argument could be made that with increased experience and access to data, today’s policy makers could be less active than their predecessors
• However, during the Greenspan era, the target rate was altered once every 78 days, on average
• The median period between rate changes was just 45 days
9. G. William Miller (Fed Chairman 3/8/78–8/6/79) Hiked Interest Rates 20 times and Never Cut Them
• Based on policy stats alone, Miller is the only Fed chairman to hike interest rates more than he cut them
• Unfortunately for the U.S. economy, those 20 interest hikes amounted to only an increase of 3.88% in the effective Fed Funds Rate target
• Despite his tightening record, he actually wasn’t hawkish enough
• In a perplexing sign of faith, Jimmy Carter “demoted” Miller from Fed chair to Treasury secretary, the only person in history to hold both offices
10. Presidential Campaign Season Is Starting Up
• There have been 17 presidents vs. 15 Fed chairs since 1913
• Chairman Yellen’s current term as chair is scheduled to end February 3, 2018
• Her term as a member of the board expires January 31, 2024
• Monetary policy is broadly balanced in presidential election years
• 32 hikes vs. 26 cuts over the course of the calendar year
1Board of Governors of the Federal Reserve System, “Policy Normalization Principles and Plans”, 9/17/14.
2Source: Goldman Sachs, 3/23/15.
3Daniel L. Thornton, “The Dual Mandate: Has the Fed Changed Its Objective?,” Federal Reserve Bank of St. Louis Review, March/April 2012.