Alice Rivlin on the Fed Decision

One important problem for traders and investors is the noisy environment of commentary.  At “A Dash” we try to highlight people for whom we have the greatest respect.  One of these people is Alice Rivlin.  While she is an occasional guest on financial TV, we suspect that most do not understand and appreciate her wisdom.

Alice Rivlin’s Career

Alice Rivlin is the envy of anyone in the public policy business.  She has epitomized the idea of speaking truth to power.  In between various stints at the Brooking Institution, a leading think tank where any of us would like to spend a year, she has had important policy roles.

Rivlin was the first director of the Congressional Budget Office, formed to provide non-partisan economic analysis of budget issues for the highly partisan members of Congress.  This nearly impossible job was defined by Rivlin, who earned the respect of all.  Those following her have attempted to emulate her dispassionate and unbiased analysis of key budgetary issues.

She later served a term as Vice-Chair of the Fed.  This experience allows her to comment on issues with real authority, showing how key policymakers view problems.

Market participants should listen.

Rivlin’s Take

Larry Kudlow’s excellent television program (we watch every day) included her among the guests. Here are a few salient points.

LK:  Did the Federal Reserve leave the Wall Street bride at the altar?

AR:  …(T)he Wall Street Bride should have been left at the altar.  The Fed should concentrate on the real economy, and the real economy is not in bad shape.

LK:  …but what about these credit market fog-ups.  In all seriousness, commercial paper ain’t working, LIBOR ain’t working.  Doesn’t that bother you?  Firms need money.

AR:  It does bother me, but it is not clear that the Fed can fix it with all of this cheap money and easy populism that  you guys seem to favor.  This might make the situation in the long run worse.

At an earlier point in the interview  Rivlin stated that the Fed would watch what was happening in the real economy — employment and spending reports.  She did not see this as necessarily occurring.

She sees payroll creation as not great, but not a sign of imminent recession.

Also, “The financial markets are crybabies.  A lot of people made a lot of bad decisions and now they want the Fed to bail them out.  That is not the Fed’s role”.


Market participants will not agree with Rivlin, since they are focused on any tidbit of evidence that suggests a recession. One so drastic that people will be looking to delete repossessions from their credit report in the aftermath.  Whether one agrees or not, it is wise to be cognizant of the view of policy makers.  Rivlin’s comments provide such an insight.  Intelligent and informed people can see the same evidence and arrive at different conclusions.

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  • Mike C December 12, 2007  

    I happened to catch Becky Quick’s interview with Warren Buffett prior to the Fed decision.
    I don’t think it is hyperbole to basically say he couldn’t care less what the decision was. He mentioned that if Bernanke whispered in his ear what he was going to do, it wouldn’t change what he (Buffett) would do or wouldn’t do one bit.
    Buffett mentioned that he had absolutely no idea whatsoever what the Fed was doing back when he bought Washington Post in the 70s or Coke in the late 80s and they are up like 100x and 10x since initial purchase.
    Whether the Fed should cut 25 or 50 bps makes for an interesting academic discussion but I’m not sure one should be making radical changes to their portfolio based on that. I know I certainly am not. If somebody else can play that game and actually add alpha based on incremental Fed changes, more power to them, but seems like a fool’s errand.
    I do think longer-term Fed actions may be a source of some longer-term investment themes (continued performance of precious metals???), and that could be interesting to think about.

  • jack reacher December 12, 2007  

    Well…she may be right. But let a couple of banks fail, and we’ll see how the “real economy” is then. The yield curve is such that the banks can not reliquify. They are not getting paid to make loans. So, why loan money? They won’t. We’ll see how that affect the “real economy”..

  • Aaron December 12, 2007  

    I watched this interview with Rivlin and Kudlow. Interesting stuff. Rivlin certainly knows what she is talking about. Kudlow is almost overly bullish, but his program is very educational.