33: How ``Fed Watching'' Became a Thing

Tracy Alloway (0:06)

Hello, and welcome to Odd Lots. I'm Tracy Alloway, Executive Editor of Bloomberg Markets.

Joe Weisenthal (0:11)

And I'm Joe Weisenthal, Managing Editor at Bloomberg Markets.

Tracy Alloway (0:14)

So, Joe, you know, eight times a year, markets kind of go through this ritual where we have policymakers from the Federal Reserve meeting to discuss US monetary policy. And today is actually one of those days.

Joe Weisenthal (0:29)

Yeah, so I'm partial to jobs day every month, non-farm payroll day, first Friday of every month is my favorite day. You know, it's like the Super Bowl, 12 times a year. It's my favorite day.

But in terms of excitement, the next closest day for me has to be obviously the eight times a year that the Fed meets and decides what it's going to do with monetary policy. And we're recording this on, today is June 15th, so it's Federal Reserve Day. We're recording it before the decision, so we don't know what's going to come after. But today we're going to talk about Federal Reserve and monetary policy from a slightly broader perspective.

Tracy Alloway (1:12)

Right, so you know what happens on Fed days, right? Everyone goes kind of nuts. We have all the economists piling in, making their predictions, and then analyzing what actually happens. We have investors who are potentially repositioning their portfolios, analysts, the media. It's all anyone can ever talk about.

But was this always the case, or was this degree of Fed watching something relatively new that happened only in the past few years? We are going to speak with one of our all-time favorite Fed watchers to discuss.

Joe Weisenthal (1:54)

We are here with Tim Dewey. He's a professor at the University of Oregon.

He writes a fantastic blog, basically devoted to watching the Fed, and Tim is in studio with us, so welcome, Tim Dewey.

Tim Duy (2:08)

Well, thank you very much for having me today. It's a great day in New York, and I'm having a great time.

Joe Weisenthal (2:12)

Thank you. So, let's talk about the beginning. Right now, or let's take it from the beginning, because we know that Fed Day is this huge, essentially market holiday, and everyone tries to pick apart the Fed statement and look at every word and try to figure out what it means and the dots and the press conference.

But was it always like that?

Tim Duy (2:32)

It has become more involved over time. I started doing this back in the late 1990s. And at that point in time, it was still a big deal, but it wasn't the circus that it is today, especially because we didn't have statements that were usually as extensive. We didn't have a press conference to work with.

And I think that over the period that I've been looking at it, well, another issue is that the monetary policy has become such a more important part of the economy as we've transitioned away from less and less using fiscal policy as a stabilization tool. A lot more emphasis has been put on the Federal Reserve as a stabilizer for economic activity. So over that period of time, I think definitely, yes, we have seen much, much more interest in the subject.

Tracy Alloway (3:25)

And was there a moment where you kind of realized to yourself that Fed watching had become a thing?

Tim Duy (3:34)

Maybe when I started doing it as a job. It was the time I thought it became a thing.

Again, because I've been doing it for quite a while, I've been able to see it build and evolve over time. And so for me, there was no one sharp break that it became much more interesting. Although I would say that during the financial crisis, it certainly rose in prominence a great deal because it wasn't then just about interest rates. That's when you went down the road of the alphabet soup of lending facilities to help ease the financial crisis. For example, you went down the realm of quantitative easing.

So the nature of the game did change, I think, dramatically at that point. It became somewhat more complex, too, when you did more direct forward guidance to the markets. And so sometime within the last year, since the financial crisis, I do think there has been a market increase in the attention that we give to the Federal Reserve. And a lot of that's just due to the broader scope of the activities it's engaged in.

Joe Weisenthal (4:38)

So let's get down to specifics. You mentioned the actual Fed statements are longer today than they used to be. There's more words in them than there are all these follow on things.