Jerome Powell is NOT an Idiot

Every Wednesday at HX Daily, we write about famous investors and look to share their wisdom.

Given that today is the second day of the September Federal Reserve meeting and marks the first Fed Funds rate cut(s) in several years, we thought it would be a good time to look up some quotes from Chairman Jerome Powell.

One of the first quotes we found was this one…

“There is no risk-free path for monetary policy.”

This quote got us thinking about what the Fed does for the economy.

We have always been bothered by the strong consensus opinion that the Federal Reserve doesn’t know what it is doing and is constantly wrong.

The first aspect of this opinion that bothers us is how and why the people who express it think they know better.

The most knowledgeable critics have the same background as the Fed Governors. They went to the same schools, share many life experiences, and have many commonalities.

Why would THEY have better insight than these people (the Governors) who have more data and do this full-time with vast teams working with them?

For the rest of us – why on Earth would WE think we know any better?

We don’t have the training, the information, the team, or the experience!

It reminds me of a football fan watching an NFL game and yelling at the coach for a particular call.

I am sure that the fans might be knowledgeable, but to think that they know better than this highly trained and experienced professional who has massive access to information and has studied the situation is ludicrous.

That is what any one of us criticizing the Fed Governors is like in my view…

That analogy also gets me to the quote we share from Powell above.

My belief is that the Fed knows what it is doing and is in the best position to make decisions that will steward our economy's growth and stability.

That does not mean they get every call right, just like a professional football game.

It also doesn’t mean they will WIN every game.

The goal is to get most of the calls right and post a winning season that eventually ends up winning the championship.

This is also a lot like TRADING or INVESTING. You would never expect a money manager to get every single call right.

What you want them to do is do the work, have a sound process, and then make the best decisions possible that ultimately result in your portfolio making money.

During that process, you are likely to lose positions. You may also have months or quarters where you lose money. You could have long streaks of not getting much right because some assumptions you have made are incorrect.

If you are a good trader or money manager, your process evolves, and you adjust to your mistakes.

This is EXACTLY what the Fed does, in my opinion.

They underestimated the magnitude and duration of inflation, so they raised rates. They may have had to do much more than they originally anticipated.

Eventually, though, we reached a point where inflation was under control (now), and growth stayed steady.

To me, the Fed has taken us to the playoffs for the last five years. We survived one of the most traumatic socio-economic events in human history, COVID. We did it without the economy collapsing and with overall social stability.

We have also quickly returned to steady and stable growth with rising incomes.

The Fed has done a tremendous job

 in the three decades of my career.

Looking back from the early 1990s to today, we have seen huge progress as an economy, a society, and a stock market.

This isn’t BECAUSE of the Fed but rather because of American capitalism and the growth and stability inherent in our economic and social system. The citizens and companies are the players. They ultimately are responsible for the winning.

The Fed is the coach, though, and they – in unpopular opinion – have done a pretty darn good job of getting us to the championship year after year.

We think Jerome Powell and the rest of the Fed Governors are smart, and we are glad we have them working on our behalf.