Can we stop comparing the economy to a car?
This overused metaphor has inspired a million overconfident statements about “overheating”, or the lack thereof. It may also be behind one of the more puzzling combinations of Federal Reserve statements and forecasts in recent memory.
The Fed’s voting members unanimously decided against raising rates today:
They also overwhelmingly agreed that they want to raise rates more in the future. Find the dots below, with our doodles in red. (The arrow is where rates are today.)
But, again, they didn’t raise rates today. ¯_ (ツ)_/¯
Commenters, economists and journalists were confused. Why not just raise rates now if they need to keep rising?
When directly asked this question by the WSJ’s Nick Timiraos, Fed Chair Powell pulled out a metaphor that appeals to not only the highly calculus-brained economists on the Fed staff (it’s a second derivative/deceleration issue!) but also folksy regional-bank officials. Also goldfish-brained journalists, who like to talk about things in terms that are easy for Americans to understand.
Like cars.
“The question of speed is a separate question from that of level,” Powell said. “Speed was very important last year, and as we get closer and closer to the destination,” it’s common sense to slow down a little, he said.
But is this journey a race? A road trip? A commute? Really, the comparison only makes sense if the Metaphorical Economy Car isn’t about to speed into a brick wall. So we suppose Powell could be expressing . . . confidence that there isn’t looming economic disaster? Maybe?
Stocks are up slightly in late trading, after they fell as much as 0.7 per cent on the statement, so that’s cool.
Source: Economy - ft.com
