Making Markets Mark Dow: A Behavioral Macro View - [Making Markets, EP.13]
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Jan 19, 2024 Mark Dow, former economist with the US Treasury and the IMF, talks about why economists struggle with trading, the significance of the Federal Reserve, misconceptions about monetary policy, the current risk cycle, modern monetary theory, asset price inflation and wealth inequality, and analyzing the state of the housing market.
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The Fed As A Narrative Explainer
- The Fed is a convenient narrative for media and investors to explain price moves and excuse missed calls.
- Mark Dow says monetary policy often gets overstated compared with actual market drivers.
Why Tightening Didn’t Trigger A Big Recession
- Monetary policy had limited power this cycle due to better initial balance sheets and weaker feedback loops.
- Strong initial conditions prevented the rapid self-reinforcing deleveraging seen in past recessions.
Shadow Banking Weakens Fed Control
- The Fed controls less of money creation now because shadow banking (repo, Eurodollars) issues liquidity outside Fed reach.
- Interest-rate policy is a blunt tool when much money creation occurs beyond traditional banking.