Everyone likes to say the Federal Reserve is “taking the punch bowl away from the party” when it raises interest rates, as a way to put in plain English the idea of taking away a stimulus measure because the economy (the “party”) is going well.
The problem with this latest Fed move is, it wasn’t raising its benchmark federal-funds rate (i.e., the “punch bowl”) that decides what banks charge each other and sets the tone for all rates. It was taking a preliminary step — a pre-exit move, if you will — to raise the rate it charges banks when they need money.
So, you can imagine the cacophony of analogies that ensued.
It wasn’t so much that the Fed was taking the punch bowl away, said Bloomberg Radio host Tom Keene. It was more the Fed saying, “I think we should go in the other room and check the punch bowl.”
Using the popular “exit strategy” term, Burt White of LPL Financial told Reuters, “The Fed is not ready to exit the door, but it has certainly put on a coat to do so.”
David Darst, chief investment strategist at Morgan Stanley Smith Barney skipped the party altogether and went straight to the hospital.
"Given the raise in the discount rate, to me it says the patient can now get around with the aid of a cane — the patient is out in the sunshinewalking around the courtyard of the hospital."
Sam Stovall, chief investment strategist at Standard & Poor’s, got a little juvenile.
“What the Fed is saying is that 'We’re taking away the training wheelsand you’re back to pedaling on your own,' which is what we were doing before,” Stovall said.
Perhaps the most creative was Pimco’s Bill Gross. "This is the Fed's version of Groundhog’s Day,” Gross said the morning after the Fed move. “Last night we saw the shadow: We have at least six more months of zero-degree interest rates."
So, there you have it in plain English: The Fed put on its coat, checked the punch bowl, walked out in the sunshine, took off the training wheels and saw its shadow.
I think we're clear now, right?
Have a great Fed analogy? Email me at firstname.lastname@example.org or drop a line in the comment box below.
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