Tapping The Brakes

If you’re driving down a US highway in the left lane at a “respectable” speed (nobody does the speed limit in the left lane, so if you’re going to stay over there, common courtesy dictates that you keep it roughly eight mph above the posted limit), it’s not generally advisable to “tap the brakes” if the driver behind you refuses to keep a safe distance from your bumper.

In cases like that, it’s best to just accelerate briefly, put on your signal and move to the right lane.

That’s exceedingly hard for most Americans to accept, though. In fact, if you compiled a list of the top 50 everyday occurrences that irritate average Americans, having another vehicle “ride your bumper” when you’re already driving above the posted limit would surely be on it.

Rather than (or at least prior to) doing the rational thing, most American drivers who find themselves in that situation will do one (or more) of the following things: 1) Throw up both hands to pantomime exasperation, 2) shout “I’m already going over the speed limit!” into the rearview mirror, as if the other driver can hear them, 3) point to the car in front of them in an effort to communicate to the driver behind them that they too would be driving like a bat out of hell if it weren’t for the guy up ahead, 4) tap the brakes as a “warning,” 5) swerve to and fro a bit in order to show the other driver “what crazy really is,” 6) abruptly yank the wheel right, careen into the driving lane and make an obscene gesture as the other car passes.

All of those things are exceptionally dangerous while traveling at high speeds, and they’re all examples of vigilantism born of frustration, not altruism. Notwithstanding subsequent attempts to explain away dangerous behavior when your spouse asks why you terrified the children and risked everyone’s life to prove a point to a stranger on the highway, nobody “taps the brakes” out of genuine concern for the rest of society. It’s never “Well, maybe if I send a small message to this person with my brake lights, it’ll save a life down the road,” where “down the road” can be taken figuratively and literally. That nuance is important. Nobody really cares about a hypothetical accident not involving them at some indeterminate future date, and crucially, no one is responsible for that accident besides the people involved. You can’t be arrested two years from now on the excuse that you abetted a fatal highway crash by failing to “tap the brakes” on the at-fault driver when you had the chance.

In the current conjuncture, we’re all riding the Fed’s bumper on the highway, and the Fed is already going pretty damn fast. As Jerome Powell himself put it, while speaking during the October 2012 FOMC meeting (the transcript is here), “It will never be enough for the market.”

Unlike America’s millions of Del Griffiths and Clark Griswolds, the Fed actually can be indicted (in the court of public opinion and also in front of Congress) years later for failing to change the behavior of bad drivers.

By virtue of bearing some responsibility for financial stability, the Fed can’t calmly signal, move to the right lane and let us all drive by at 115 mph. Because when we invariably crash, they’ll be blamed. Of course, by driving 90 in the left lane for more than a decade, the Fed set a terrible example, so they already bear quite a bit of responsibility for our bad driving habits which, by virtue of having persisted for so long, are now very hard to break.

Out of the half-dozen typical reactions to bumper-riding listed above, only one (tapping the brakes) entails trying to forcibly change the other driver’s behavior. (If you brake, the other driver has to brake too, at least for a split second, or else there’s an accident.) The rest are merely suggestive. The Fed occasionally “suggests” some corners of the market are frothy, but that kind of language almost never matters to market participants — it’s scarcely a deterrent (see here, for example).

So, in effect, the Fed is compelled to tap the brakes on us from time to time, but the faster we’re all going, the more dangerous that is. The June dot plot and the onset of taper discussions appear to be the first attempts (post-pandemic) at getting us all to slow down, but as Jim Bullard rediscovered on Friday morning, tapping too hard is risky.

If you’ve ever tapped the brakes on someone (or had them tapped on you), you’re aware that depending on the disposition of the other driver (or your own disposition), the “message” is sometimes misconstrued or gets blown out of proportion. Rarely does anyone see the brake lights and hear “In my capacity as a good Samaritan, and in an effort to prevent you from causing harm to yourself and others, I’m taking this opportunity to suggest that you observe proper highway etiquette.” Instead, the driver who was “tapped upon” (if you will) hears something antagonistic, which often makes the situation immeasurably worse.

What we saw Wednesday afternoon, Thursday and into Friday morning was instructive in that regard. As Nomura’s Charlie McElligott put it, “the market — right, wrong or indifferent — has chosen to focus on the ‘tightening financial conditions’ implications of Fed hawkishness as a ‘pull forward’ of the eventual slowdown, acting as a ‘cap’ on how far inflation and economic growth can really overshoot.”

That, Charlie said, “is contributing to an exaggerated ‘Long Duration’ optic, as ‘Reflation’ expressions are being tapped out.”

“Tapped” out, indeed.

If you’re wondering where the highway patrol and state troopers are in this bit of Friday frivolity I’ve just penned for you, my rejoinder would be: I don’t know. You tell me.