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Waiting For Janet Godot

11/23/2015

Sixty-six years ago, Samuel Beckett wrote the great existential play Waiting For Godot.  In that play, several travelers are waiting for a very long time for the arrival of Godot.  The story focuses on the interrelationships while they wait . . . and wait.  Things get increasingly testy between them as they wait . . . and wait.

Waiting for the Fed to raise interest rates has become like Waiting for Godot.  To be clear, there is no economic reason for the Fed to raise interest rates.  Their dual mandates are to control both inflation and unemployment.  Guess what:  Neither is a problem, and neither needs to be controlled!  Neither inflation nor unemployment provides an excuse to raise interest rates.

However, the cry to “normalize” interest rates has become deafening, by both conservatives and investors.  The conservatives argue that the Fed has taken extraordinary steps to make a Democratic president look good.  I believe, however, that the Fed has taken extraordinary steps in monetary policy to prop up the economy while fiscal policy remains impotent, and I believe they would have done the same if a Republican was president.  Regardless, this complaint has become increasingly shrill.

Investors also want interest rates to rise because they are tired of living under the guillotine.  If the Fed raises rates rapidly, the stock market is clearly over-valued.  If the Fed raises rates slowly, the stock market is probably fairly-valued.  This uncertainty is a serious worry for investors.  After the Fed declined to raise rates in September, the stock market fell, because the market was expecting the level of uncertainty to decrease, but that didn’t happen.  If the Fed doesn’t raise rates during its meeting next month, I expect stocks to fall again.

Madam Chair, please raise our interest rates once and then go away!

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