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There is no “wait and see” for Fed policy

Summary:
During the Great Recession, I used to argue that when it comes to monetary policy, there is no “wait and see”. Within minutes of a Fed announcement, the financial markets give us almost all the information on the likely impact of a new policy that we will ever have.  The actual future course of the economy depends not just on the new policy, but also on many other extraneous factors. The same is true of the world of sports, where the betting line for a game is a rough estimate of the market prediction as to the outcome. The prediction is relatively efficient, although the actual outcome of the game is highly random and often differs one way or another from the predicted outcome. This recent story caught my eye: The Packers were 1-point favorites on Tuesday. Then on

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During the Great Recession, I used to argue that when it comes to monetary policy, there is no “wait and see”. Within minutes of a Fed announcement, the financial markets give us almost all the information on the likely impact of a new policy that we will ever have.  The actual future course of the economy depends not just on the new policy, but also on many other extraneous factors.

The same is true of the world of sports, where the betting line for a game is a rough estimate of the market prediction as to the outcome. The prediction is relatively efficient, although the actual outcome of the game is highly random and often differs one way or another from the predicted outcome.

This recent story caught my eye:

The Packers were 1-point favorites on Tuesday.

Then on Wednesday, Aaron Rodgers was ruled out for Sunday’s game at Kansas City due to a reported positive test for COVID-19. And we got a clear idea how much the Packers quarterback matters to the point spread.

When BetMGM opened the line after the news, the Chiefs were 7.5-point favorites. Not many players ever can cause an 8.5-point difference in the spread. . . .

Rodgers is one of the league’s best players. We saw it yet again last week when he helped a shorthanded Packers team to a win over the then-undefeated Arizona Cardinals. It’s arguable he means even more than 8.5 points to the spread.

We’ll find out on Sunday what Rodgers’ absence means for the 2021 Packers.

I’m not sure it’s “arguable” that he means more than 8.5 points to the spread, at least for this game.  Perhaps the reporter means that it’s arguable that the change in the spread underestimates how much he actually means to the Packers.  In any case, we probably won’t find the answer to that question on Sunday–as football outcomes depend on all sorts of unpredictable factors.  We might know a bit more after Sunday, but not because we’ll know more about Rodgers, rather we’ll learn a bit more about his replacement.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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