In my opinion, the reason the consensus among Fed watchers has been so badly off during the past several years has very little to do with witting speculations having gone awry. Witting speculations are hard.
It is much more to do with those unknown unknowns, things people believe are beyond questioning and yet are not.
This editorial on what the Fed “should” do tomorrow is the best I have seen in terms of collecting all these unwitting premises into a tight, comprehensive non-argument. You don’t often see not thinking in its Platonic essence:
A rate hike would bring “clarity”, because after Wednesday people would just stop worrying about the Fed.
It would be part of “renormalization.” Clearly the normal funds rate is way different from what it has been for eight years.
It would follow the logic of a Taylor Rule, which is a good thing, having worked so well lately.
It would reduce the risk of bubbles. All bubbles happen when rates are 40 bps or less for precisely eight years and none happen with rates “normal.”
It would unwind the “distortions” caused by low interest rates and the Fed’s bloated balance sheet. What the Fed really needs is to let go with a good fart to deal with all the bloating associated with shortening the average maturity of the federal debt.
It would recognize that you don’t need “crisis” policy when the economy is not in crisis. Monetary policy is best conducted as a semantics debate.
I think all of those arguments are extremely weak, as I have belabored pretty much since I started this blog. I could be wrong on a lot of that. The markets are not spotting you much to bet dovish for tomorrow. Dovish is clearly the consensus among people who actually bet money.
But what strikes me is the popularity of the belief that these points are not even debatable. They are just breezily taken as self-evidently true, even though believing in them has been practically speaking a huge loser for years now.
One innovation that the Bloomberg editorial does bring, besides collecting all unwitting premises into one place, is the promotion of intentional anchoring. They want the Fed to conduct policy on the basis of what people previously would have believed. I had not quite seen that one before. Innovative.