Book Review: Fed Watching for Fun and Profit

Fed Watching for Fun and Profit: A Primer for Investors. 2020. Edward Yardney. YRI Press.

Fed Watching for Fun and Profit: A Primer for Investors The economist Edward Yardeni provides a detailed explanation of what he has discussed Market Forecast: A Professional Autobiography. His lessons on following and analyzing the Federal Reserve Board for decades are included in hundreds of pages. Those who have read Market forecast It should be familiar with its descriptive style, which instructs the reader in a simple, straightforward manner.

Yardney covers all aspects of the Fed, from its inception in 1913 to the present day. He describes the changes that have taken place in terms of the structure of the organization, its mandate, and the type of people he is leading. In addition, Yardney explains how the Federal Open Market Committee (FOMC) is formed, how its meetings proceed, who votes, what data is viewed, and how policy statements are disseminated.

The author emphasizes the importance of identifying who is strongest in the FOMC, how they affect public opinion, and how Fed policy statements should be read and evaluated to guide future interest rates. In carefully interpreting the policy statement, consider what happened in the last quarter of 2018. Excluding two words – “coordinating position” – the September 2018 statement created inconsistent communication about the future expectations of FOMC members. Investors estimated that the rate has been tightened and as a result the price of the major stock index has exceeded 20% in less than two months. Markets calmed down after Fed Chair Jerome Powell executed his current-famous “Powell Pivot” and promised the Fed to be “patient” in raising rates.

Fed watching for fun and profit The last five Fed chairs describe the details and their thought process before and after taking office. Yardeni explains how philosophy, context, and personal belief systems influence the decision-making process. These are unique to each Fed chair. Ben Bernanke, for example, did what he did during the Global Financial Crisis (GFC) because of his understanding of what happened during the Great Depression. The United States and the world could have gone a different way if someone else had been in the chair during the GFC.

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Yardeni helpfully takes readers through a number of important historical events. These include dismantling the Bretton Woods system, the International Monetary Fund’s (IMF) dollar rescue package, and changing the monetary policy to provide funding from federal funds.

The book contains interesting trivial matters. For example, it is pure peace that Jackson Hole, Wyoming, has become a permanent destination for the Fed’s annual economic symposium. The event was attended by central bankers, finance ministers, academics and leading market participants from around the world. The frequently declining Smoot-Howley Tariff Act of 1930 helped transform a general recession into a Great Depression. At Yale University, graduate students still use a past Fed Chair class notes as an informal textbook. One Fed chair received a request from the president to resign but refused to do so despite intense pressure. A man once entered the Fed building with the intention of taking members of the Federal Reserve Board hostage.

The author shows how investors can take a profitable position by predicting how the Fed will work. The portfolio managers who read this book probably positioned themselves to benefit from the recovery of the risky asset class during the Covid-1cor revision in 2020. Yardeni stressed that central banks have acted as a last resort for the last 30,000 years and argued that they would continue to do so. He made it clear that there was no point in fighting or second-guessing the Fed, regardless of his own views on appropriate monetary policy.

The author briefly touches on obsolete tools that the Fed may use in the future. An example is the special treasury account in the central bank, which can be met to achieve employment and inflation targets. In another timely matter, Yardeni expressed his doubts that the government and central banks would allow cryptocurrency to take financial action.

Book jacket in the history of financial markets: a reflection of the past for investors

In short, Fed watching for fun and profit This is a crash course for anyone interested in monetary policy action, financial markets and the economy in general. Institutional investors, individual investors, businessmen, policy makers and students can gain a better understanding of how the Fed has worked in the past. This knowledge can help decision-makers anticipate the Fed’s future actions and the impact on their respective economic and financial markets, and determine the steps that need to be taken accordingly.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed must not reflect the views of the CFA Institute or the author’s employer.

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Shravan Kumar Srinivasula, CFA

Shravan Kumar Srinivasula, CFA, Head of Investment Advisory and Solutions Group, Avendas Wealth Management, Mumbai. He provides investment guidance to UHNIs, family offices and corporate treasuries across asset classes. He has more than a decade and a half of experience in multi-asset and multi-manager products as a fund manager at leading asset management companies.

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