{"text":[[{"start":7.32,"text":"Earlier this week, newish Fed chair Kevin Warsh compared himself to the referee in an unspecified ball sport:"}],[{"start":14.6,"text":"Market participants are learning to play the ball, not the referee — and market prices will continue to respond in the direction and magnitude they see fit. This is, in my view, a change for the better — and we are just getting started. After all, the central bank need not always and everywhere be the center of attention."}],[{"start":33.76,"text":"As Rob Armstrong wrote over on Unhedged, that analogy seems absurd:"}],[{"start":38.64,"text":"This is so far from the reality of the situation that it is hard to know where to begin. But start with the fact that the Fed sets short-term interest rates. Of course, market participants who are betting on the direction of short-term rates have to form a hypothesis about what the Fed is going to do. They will form this hypothesis using whatever information is at hand. Whether the Fed’s press releases are long or short, or whether the chair’s answers to hard questions are substantive or vacuous, this remains the case."}],[{"start":68.64,"text":"Warsh’s metaphor, in other words, is utterly wrong-headed. The Fed is not a referee; it’s a player, and a very important one. Communication strategy does not change this. This point strikes me as so obvious that when Warsh, a good economist with deep experience of markets, talks this way, I just don’t know what to make of it."}],[{"start":89.12,"text":"What kind of important player is Warsh? Citi Global Macro Strategy has decided to run with the analogy. They’ve determined that the sport is definitely football, and the player is Argentina star Lionel Messi 🐐."}],[{"start":101.84,"text":"If Mervyn King gave us the ‘Maradona Theory of Interest Rates’ to describe active forward guidance,"}],[{"start":107,"text":"…the team writes in a note released overnight…"}],[{"start":109.2,"text":"Kevin Warsh is giving us the ‘Messi Theory of Interest Rates’ for no guidance."}],[{"start":109.7,"text":"They continue:"}],[{"start":126.72,"text":"Quietly waiting, observing and only acting when necessary seems more Messi than Maradona. Market pricing of hawkish credibility through the FOMC meeting suggests more guidance around Jackson Hole is needed."}],[{"start":126.72,"text":"“Quietly waiting, observing and only acting when necessary” still sounds to FT Alphaville rather more like the role of a referee than a player (even one like Messi) and, as Rob writes, completely at odds with how the Fed functions in the market."}],[{"start":143.12,"text":"Anyway, Citi continues further:"}],[{"start":145.44,"text":"Mervyn King’s famous Practice Ahead of Theory (2005) speech described using forward guidance to move rate expectations, allowing monetary policy to be impactful even if policy rates are stable. The Maradona Theory of Interest rates used the analogy of energetic Argentine football maestro Diego Maradona feinting to go left and right, deceiving defenders. Despite ultimately moving in straight line [sic], he still ends up in front of goal and scoring. Warsh’s preference seems to be to make no moves and give no guidance, combining uncertainty with an apparent readiness to act, allowing markets to do the work for him. Rather than Maradona, this sounds more like Argentine compatriot Lionel Messi. Messi famously does little until he needs to: in 2017 he walked for 83% of an El Clasico match against fierce rivals Real Madrid, but still registered a goal and an assist in a 3-0 victory. Time will tell if this is effective, or if readiness becomes action. What evidence do we have of Warsh’s desire to wait and see?"}],[{"start":207.92,"text":"We know, we know, the World Cup was a big deal and everyone has a take, but is this framework useful at all?"}],[{"start":214.1,"text":"The implication that running is the only measure of involvement in a football match seems… a bit simplistic? Messi moves around a lot, he just doesn’t always run to move. How does this analogy handle defensive vs attacking actions? Is Rodrigo De Paul the Treasury market?"}],[{"start":230.32,"text":"Plus, Messi’s goal in that 2017 game was a penalty awarded for a Dani Carvajal handball to block a Paulinho attempt, which is surely the type of goal that running stats are least pertinent to, and is also extremely hard to translate into a monetary policy analogy."}],[{"start":245.52,"text":"If anything, Warsh surely wants to be more like Rodri, the World Cup player of the tournament: unruffled, rarely doing anything alarming, keeping it simple, dictating the pace with a metronomic… [that’s enough — Ed]"}],[{"start":246.02,"text":"Further reading:"}],[{"start":246.52,"text":"— Trying to make sense of Warsh"}],[{"start":264.4,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1785547019_7924.mp3"}