 By Alan Hall | Excerpted from the June 2012 Socionomist
To read an update to this study, see the December 2014 The Socionomist |
Can you predict what the U.S. Federal Reserve will do? Socionomists can.
In this pivotal article, socionomist Alan Hall explains that social mood guides the U.S. Federal Reserve’s interest rates and the tone of their meetings. By monitoring the social mood and its manifestations, you can anticipate the Federal Reserve’s decisions.
For more than two decades, Elliott Wave International has been tracking the relationship between interest rates set by the marketplace and interest rates set by the U.S. Federal Reserve. The link we identified—that the market leads and the Fed follows, not the reverse—continues to hold. This observation supports the idea that the market price of Treasury bills is an important influence on the Fed. Social mood greatly influences markets, so ultimately social mood influences the Fed.
Which Moves First—the Market or the Fed?
Let’s begin with an update of EWI’s 2007 chart showing that the market leads the Fed’s interest-rate policy. The continuous line in Figures 1 and 2 is the three-month U.S. T-Bill yield set by investors, and the dashed line is the Federal Funds Target Rate set by the Fed. This history shows that the T-bill market moves first, and the Fed’s interest-rate changes follow.
Figure 1 – EWI’s Analysis in Sept 2007
Figure 2 – What Has Happened Since 2007
Chapter 19 of The Wave Principle of Human Social Behavior (1999) describes the result: “A socionomist monitoring the T-bill rate can predict with fair accuracy what the Fed will do. No one monitoring the Fed’s decisions can predict what T-bill rates will do.”
The FOMC Laughter Index
Since 1974, the Federal Open Market Committee (FOMC)—a group within the Federal Reserve that oversees the Fed’s buying and selling of United States Treasury securities—has produced five-year-delayed transcripts of its meetings.1 Beginning in November 1976, the transcripts include “[Laughter]” notations. As far as we can tell, The Daily Stag Hunt website in January 2012 was the first to publish a chart showing a portion of the laughter data.2 We have expanded on the idea, charting all “[Laughter]” notations and plotting them against the Dow to assess how they align with social mood (see Figure 4).
Figure 4 – A Trend to Giddiness
The first significant laughter occurred in 1979-1980, soon after Paul Volcker became Federal Reserve Chairman. Those chuckles immediately gave way to the longest dour spell in the data—a 17-month span indicated at the bottom of the chart. This period includes the final low of the triple bottom in stocks of 1974/1980/1982.
A burst of laughter accompanied Alan Greenspan’s August 11, 1987 appointment as Fed chairman. The Maestro arrived just two weeks before the August 25 major peak in the stock market; the subsequent negative social mood drove the September-October stock market crash and cast a pall on the Fed’s meetings.
February 1991 brings the only record of the FOMC committee “hooting” with laughter. As the economy remained mired in a recession at the time, the hooting would seem to have little rational basis. Anyone trying to predict the Fed’s mood using the conventional event-driven model would have forecast a somber meeting. But a Primary-degree period of negative social mood—labeled Wave [4] in the chart—had just ended. A large-degree positive trend in social mood was under way, and the Dow had begun rising sharply toward new all-time highs. The total amount of laughter was still low compared to what was coming, but in its way the Fed was expressing society’s emerging ebullience. …
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Read the complete, five-page report to learn how social mood would guide the Fed’s laughs and frowns for the next twenty years.
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The Socionomist enables you to see trend-shaping waves of social mood, as reflected by the stock market — and capitalize on them. The June issue looks at phases of social mood and features a “Research Roundup,” which highlights five academic studies that shine a light on important aspects of socionomic theory. Mood Riffs topics include “quiet luxury,” loneliness, the Writers Guild strike and efforts by countries to trade in currencies other than the U.S. dollar. Read the June issue when you become a Socionomics Premier Member.
