The Fed-Watching Club

Market commentary has always organised itself into clubs. Not formally, of course, but socially and reputationally, with all the signalling that comes from deciding which conversations are worth being seen to have. At any given time there is a fashionable place to be, a subject that confers seriousness and relevance and the reassuring sense that one is close to where things are happening.

These clubs change. Trade data was once the most exclusive room in town, full of people talking knowingly about containers, ports and mysterious lags that only insiders understood. Then came the Non-Farm Payroll club, which enjoyed a long run as the place where real macro people gathered, eyes fixed on a single Friday morning print that briefly mattered more than anything else. CPI had its moment too, as did the Philly Fed survey, which for a while allowed people to sound granular and regional without actually leaving New York. The Beige Book club has always bumbled along, attended mostly by people who insist it contains insights if read carefully enough, which it sometimes does.

Above them all sits the grandest and longest-running club of the lot, the Fed-watching club.

For a long time this was the place to be. It felt exclusive, serious and central. Knowing how to parse a statement, how to read a Chair’s tone or how to anticipate the market’s reaction to a particular phrasing marked one out as someone who understood how markets really worked. Membership conferred status. It was the Groucho Club of macro commentary, selective, expensive in terms of time and effort and faintly smug about it.

The problem is that it still behaves as though nothing has changed.

The Fed-watching club is now more Soho House. There are branches in every city, online versions in every timezone and an endless stream of people desperate to be seen inside, nursing the same drinks and having the same conversations. It costs more than it used to, in time and attention and it impresses rather less. Everyone wants to belong because belonging still signals seriousness, even as the substance has thinned.

Inside, the conversation has become oddly repetitive, as if chemically encouraged rather than argued through. Endless debates over quarter-point moves, over commas in statements and over the emotional timbre of press conferences fill the room, all of it delivered with great confidence and very little reference to whether prices are actually moving for those reasons. It feels industrious, authoritative and reassuringly legible, which is precisely why it remains so crowded.

By design, the Federal Reserve sets the overnight price of money. It anchors the very short end of the curve and only under conditions that assume orderly markets, available balance sheets and cooperative plumbing. Beyond that narrow strip of maturity, rates are not set but discovered. They reflect supply, demand, issuance, collateral availability, hedging costs and the willingness of private actors to intermediate. Long rates do not follow guidance, they follow gravity, and gravity has never applied for club membership.

This began to matter enormously once central banks stopped merely setting prices and started trading bonds, a moment that should have been an embarrassment for the Fed-watching club. QE was not a subtle extension of rate policy but a large buyer entering the market and removing duration by force, compressing term premia and pushing private capital elsewhere. When that process later reversed under QT, it became equally clear that balance sheets were constrained, intermediaries selective and capital far less eager to absorb what had previously been warehoused. Prices moved in both directions for the same reason, quantities changed, not because guidance improved, which should have settled the matter. Instead, Fed watching doubled down, debating phrasing while the furniture was being moved back into the room.

Fed-watching culture prefers not to dwell on this because it is difficult to dramatise. Rate decisions come with meetings, forecasts and microphones. Balance-sheet operations arrive via footnotes and operational notices, which are inconveniently where prices tend to move. One flatters commentators and fills airtime, the other interferes with tidy narratives.

At the same time, enormous fiscal issuance is treated like an embarrassing relative who has turned up unannounced and is best not discussed. Governments issue at scale, duration floods the market and the assumption seems to be that someone else will absorb it, yet commentary prefers to debate rate cuts as though they were the main event rather than a sideshow running alongside a much larger supply story.

There is also the small matter of the global dollar system, which operates far beyond the Fed’s domestic jurisdiction. Offshore dollar funding, FX hedging costs and cross-currency dynamics routinely drive price action, none of which responds particularly well to domestic narrative management. The Fed sets a price in one place, the dollar system clears everywhere else and the club conversation barely notices.

The persistence of the Fed-watching club has less to do with effectiveness than with convenience. It offers an alibi. If trades go wrong, the Fed surprised us. It offers safety. Being wrong in a crowd is cheaper than being right alone. It offers performance. Talking about rates sounds serious and travels well. Talking about balance-sheet capacity, collateral velocity or fiscal dominance does not.

Markets, however, remain stubbornly uninterested in club membership. They move when marginal buyers change, when balance sheets fill up, when issuance overwhelms demand or when intermediaries step back. These are not side effects of policy, they are how policy becomes price. Rate cuts often soothe nerves rather than alter arithmetic, a comforting drink rather than a structural repair.

None of this is to argue that the Federal Reserve does not matter. It is to argue that the club built around watching it has become fusty, over-subscribed and oddly resistant to the idea that the scene has moved on. Like Soho House, it still trades on reputation long after exclusivity has vanished.

Fed watching endures not because it offers a good return on intellectual effort, but because it offers a reliable social one. Very clever people spend vast amounts of time interrogating marginal policy signals that explain less and less, largely because doing so looks serious, travels well and carries little professional risk. The misallocation is striking. The same intelligence applied elsewhere would be far more productive, which is precisely why this fixation should fade as returns continue to disappoint.

The doors remain crowded, the conversations earnest but the signal, as usual, is elsewhere.