There were two by Bank of Japan managers in the Wall Street Journal lede regarding the BoJ’s interest rate moves.

A week after Japan’s top central banker shook up global markets with comments about raising interest rates, one of his deputies walked them back Wednesday and promised not to raise rates when markets are unstable.

The lesser of the two foolishnesses is that walkback of the BoJ’s statement that it was about to raise interest rates. The increase was both correct and necessary sooner rather than later. The deputy never should have been authorized to walk that commitment back. The BoJ simply should have stopped talking about the raise, having said it was coming. It should have simply done the raise at the appointed time.

The larger foolishness, though, was that subsequent commitment. It’s a promise that no one in the BoJ has any hope of keeping, or the BoJ will never raise interest rates. Stock markets are always unstable.

The stock market’s equilibria—moving sideways for a time—are unstable; it takes no particular event or perceived event to bump the market into a rise or a drop. Rises in the market are not stable; it takes no particular event or perceived event to bump the market into a short- or intermediate- or long-term fall—or into another supposedly stable sideways move. Falls in the market are not stable; it takes no particular event or perceived event to bump the market into a short- or intermediate- or long-term rise—or into another supposedly stable sideways move.

Timing the market is a money losing move; even when central bankers try it. All timing does is mitigate losses, at the expense of long-term gain, but even that presupposes some measure of stability. Long-term gain sacrifice as the price to pay for mitigating losses often is useful for those individuals who must preserve the wealth they have—they’re retired, for instance, and have no other income—but sacrificing long-term gain is a bad move for a nation, whose citizens need long-term growth for the sake of their own and future generations.

If central banks want market stability, such as may be available within a band of inflation around a target rate, they must generate that more-or-less availability by setting their nation’s interest rates at levels historically consistent with their nation’s inflation goals and then leave those rates alone and live with the natural volatility of a free market.

The Wall Street Journal headline makes a prediction, and the subheadline adds to it:

Market Selloff Upends Fed Rate-Cut Calculus
A further slowdown in the labor market could lead to a larger half-point rate cut next month

It needn’t, though, and if Federal Reserve Chairman Jerome Powell and his Board of Governors make such a move, they’ll be ignoring history.

Inflation is right next door to the Fed’s goal of 2%\yr; the delta between today’s inflation and that target is in the region of noise around the signal.

The stock market is down a bit, even if sharply: for all the steepness of the drop over the last few days, it’s still only down 6-ish percent, not even a correction level.  The market also is irrelevant.

Historically—and history did not begin with the dot com bubble burst—Fed benchmark interest rates that have been consistent with 2% inflation have been in the 5% region. That’s where the Fed is now, and that’s where our economy’s inflation is now.

But wait—unemployment has risen to 4.3%. I say, so what. That level, and the increase over the prior month and especially the past year, plus, certainly bear watching. However, the increase is off historic lows for unemployment, and the present level remains consistent with full employment, which is another of the Fed’s statutory goals.

It’s time for the Fed—for Powell and his BoG members—to say so on both matters, and to say they’re now going to sit down, be quiet, and let market forces—this time, meaning private economy forces—do their trick unfettered by artificially, and arbitrarily, set government-managed interest rates. Who wins then? Our private economy, with both stable pricing and stable business cost of money—interest rates.

Other major winners would include the stereotypical widows and orphans, and old folks, and anyone else who depends in significant part on fixed income, which is to say interest-driven, instruments.

I repeat myself, but this bears repeating.

In his op-ed regarding the wholly unbalanced training of today’s economists (because so many of them are not getting any training in price theory), Steven Landsburg, an economics professor at the University of Rochester, wrote that he puts a question to his students, all of whom get the correct answer, and to  variety of smart lawyers, accountants, entrepreneurs, and scientists, nearly all of whom do not.

The question:

Apples are provided by a competitive industry. Pears are provided by a monopolist. Coincidentally, they sell at the same price. You’re hungry and would be equally happy with an apple or a pear. If you care about conserving societal resources, which should you buy?

Landsburg’s answer:

In a competitive industry, prices are a pretty good indicator of resource costs. Under a monopoly, prices usually reflect a substantial markup. So a $1 apple sold by a competitor probably requires almost a dollar’s worth of resources to produce. A $1 pear sold by a monopolist is more likely to require, say, 80 cents worth of resources. To minimize resource consumption, you should buy the pear.

Maybe. Maybe not. The monopolist is unlikely to be using his resources efficiently; competition will drive that producer to maximize efficiency in resource usage. On a per fruit item basis, it may be that the two are using resources the same. Maybe the competitive producer is using fewer resources per fruit item.

The more accurate answer is that there isn’t enough information in the question to provide an answer.