Dr. Dave Popple Explains Psychology of the Fed

**Marlee Caden** (0:01)
Welcome to Market Matters, I'm Marlee Caden. Each week we are stripping away the noise to focus on the big picture economic themes driving the market. Today, we are diving into central bank psychology, the FOMC's dissenting factions, and the high stakes fight over economic credibility. For years, the committee has been discussed as if it were a single mind, making a single choice. But at the July meeting, we saw something we haven't seen in a decade, a three-person dissent. With inflation still running above 4% and the committee pulling back from forward guidance, this put the market at a seismic crossroad, balancing regulatory caution against real world demand and operating from deeply conflicting psychological states.

**Dave Popple** (0:42)
It's absolutely impossible for any of them to be 100% altruistic for this task that they've been given.

**Marlee Caden** (0:52)
Joining us today is Dr. Dave Popple, founder of Psynet Group, author of an upcoming Harper Collins book on multiple self-states, and the psychologist Hedge Fund's call in when their top traders start losing their edge. Together, we are going to take a closer look at the group dynamics of the FOMC, why markets misread caution as conviction, and what institutional investors can learn from the inner workings of the human mind under extreme uncertainty. That conversation starts right now.
Dave, welcome to the podcast. Really appreciate you being with us. Now, let's just dive right in with this Fed conversation. People love to psychoanalyze the individual leadership. Powell vs. Warsh vs. Bernanke, we could go on. But the Fed isn't just one person. It's a committee of highly accomplished people with arguably some probably have massive egos because of how far they've gotten in their careers. They have very different prior experiences, and they have a shared career risk. So from a psychologist's perspective, how different is evaluating a committee versus evaluating an individual?

**Dave Popple** (1:58)
Well, I think it could be massively different. However, and as we had talked about a little bit earlier before everybody jumped on, before we got started, inside of each one of us, we have this little committee. So whether you've been watching the TV show Inside Out, and you see how the little emotions argue with each other on what this preteen girl should do or you brought it out, there are lots of dissenting voices that each one of us individually deal with. So when we are doing some analysis, especially when we are doing assessments for pre-hire, for portfolio managers or executives or so on and so forth, we really are understanding people in terms of all the voices in their head. Hopefully that doesn't sound too much like schizophrenia to your audience.
But we do want to look at that level of complexity.
Now with this VED, we have a very interesting level of complexity, something that we haven't seen before. What that is, is that there are 12 people all looking at the very same data.
In looking at that data, three of them have distinctly different opinions on where things should go than the other nine. So why does that matter? It matters because when we are looking at data and coming up with distinctly different ways of looking at different opinions, that means that we are making our decision from a different point of view, a different driver or potentially a different self-state.

**Marlee Caden** (3:45)
So let's talk about this concept of self-states because we have you and we have your expertise and I know you are actually working on a book about self-states. So now we have arguably an expert on self-states. As we look at the breakdown, the nine to three here in the vote in the last FOMC meeting, you say that we are governed by these self-states.
How does that come into play? How do 12 people look at the same data points with the same numbers and come to different decisions? What is driving each person in that group and how does the self-state factor in?

**Dave Popple** (4:22)
So there's a couple, and in a lot of ways we can only guess without really crawling into each one's head. But the first one that really comes to my mind is this significant driver, right? So there's a reason why these people decided to take such high profile roles instead of taking a role as a professor at a very high level university or something like that, right? There's something about being in that spotlight or in that moment. So we can assume that at least some of them are driven by this self-state that wants to be known, understood, seen, whatever, that that got them to that point. In some of those cases, and especially more recently, a lot of times our significance is borrowed from an external state, and a lot of people are borrowing their significance from a president that is in many ways larger than life, right? So we can assume that if that significant self-state is primarily driving the way they're perceiving the data, that part of that is to maintain their affiliation with the president, despite the fact that all 12 of them are sworn to being independent. So that's a long answer for the first date. Some of them, as you mentioned, are so accomplished, right? And they've done great things, and even to get into this spot is really an amazing accomplishment for all 12