The Federal Reserve’s triple mandate

“These things gotta happen every five years or so, ten years. Helps to get rid of the bad blood. Been ten years since the last one.” – Pete Clemenza, “Capo” Corleone Family

If one questioned the current state of our financial markets, the near panic that ensued following this past Wednesday’s FOMC meeting was all you needed to see. The Fed’s mere mention that perhaps we could see one policy rate hike, from ZERO to 25 basis points in 2022, as opposed to 2023, and that perhaps it was time to start THINKING about tapering the $120 billion a month quantitative easing purchases sent equities spinning and longer-dated Treasury yields plummeting.

I am reminded of the human growth hormone-fueled home run era for Major League Baseball in the 1990s. Perhaps the high mark (or low mark, depending on your point of view) was when Brady Anderson, an above-average major leaguer, known more for his excellent defense and speed on the base paths, managed to hit an astounding 50 home runs in 1996.The mark of 50 home runs was once the sacred realm of baseball immortals like Babe Ruth. The all-time home run king up to that point, Henry Aaron, never hit 50 or more home runs in a season.

Suddenly, Brady Anderson, a player that had never hit more than 21 homers in a season hit 50! Up until 1996, Anderson hit a homer about 2.5% of his plate appearances. In 1996, that figure skyrocketed to 7.3%! In 1996, baseball had a problem, however, the “problem” was making the league gobs of money. Therefore, the ugly ramifications and reckoning were put off a few more years, after three players smashed the sacred single-season home run record of Roger Maris. The embarrassment and revenue loss came later.

 

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