Financial markets are forward looking, giving guidance on the future state of the economy. However, if the Fed lowers interest rates purely because the markets are tanking, we are left to wonder whether the Fed is targeting the true economic problem or whether they are just recalibrating the economic barometer (equity market), and what purpose this will serve. There are endless issues of real effects, feedback loops, confidence etc that make the situation far more complex than this, but I do wonder about the extent to which recent Fed action is a simple deceptive signal, blurring the underlying equity market signal.
It brings to mind another thought about dieting and deception:
It is widely accepted that a slim, toned body is attractive to the opposite sex because it signals that individual are living a healthy lifestyle. The problem is that there is a kind of deception at work. Many people lose weight by not exercising but simply by eating less, and sometimes what little they are eating is not healthy. However, these people still manage to achieve their goal of generating the same signal as people who eat healthy food, exercise etc. They are not necessarily living a healthy lifestyle but have instead focussed on the end goal, the change in body shape.