Serving Two Masters

It is tough serving two masters.  Just ask Matthew.  Nevertheless, the Federal Reserve must attempt to do so.  America’s central bank is charged with balancing its efforts between the concept of full employment and keeping price pressures steady.  They have others to serve as well, although their allegiance could be leaning in a particular direction these days.

For most of the 2000s so far, the Federal Reserve has served as a bit of counterweight to risk in the U.S. markets.  It started in the dotcom bubble, continued during the Great Financial Crisis, and was evident again when the economy was shut down in early 2020 in response to the pandemic.  Those with financial assets and real estate have been helped by such efforts, but many Americans without stocks and/or homes have not benefited directly from our central bank’s responses to crises this century.  According to a 2021 Gallup poll, roughly 44 percent of Americans do not own any stocks, and the Census Bureau suggests 34.5 percent of them don’t own a home.  It seems probable that some own neither. 

One former central banker is starting to suggest the support from which many have benefited will no longer be available.  In this opinion piece from the former President of the New York Branch of the Federal Reserve titled If Stocks Don’t Fall, the Fed Needs to Force Them, William Dudley’s opening sentence suggests the central bank will be forced to “inflict more losses on stock and bond investors than it has so far.” 

This is one person’s opinion of course.  Now he does carry some weight given his history with our central bank.  Some argue he is floating the idea out there to gauge market reactions to the it.  Others believe he’s just trying to remain relevant after the spotlight on him has dimmed since leaving the bank.  There’s no way to know for sure how it will all play out, but the central bank might be growing more concerned about those without assets.  If it is, however, that’s probably because of worries about pitchforks during a period of high inflation and less to do with serving an impoverished master.