Episode notes
Second and Third Order Effects
On this date in 1992, Britain announced an interest rate so alarming it never actually arrived. Boujie opens on Black Wednesday — ten percent to twelve, then fifteen, then sterling out of the ERM and the fifteen-percent decision withdrawn before it ever took effect. Including the part most retellings skip: a San Francisco Fed study found little evidence markets had anticipated the crisis far in advance.
Then the Fed raised rates for the first time since July 2023. Unanimous, twelve to none, to a target range of 3.75% to 4%. Stocks held modest gains after the announcement and gave them back during the press conference. The Dow fell 631 points, the S&P lost 0.45%, and the Nasdaq finished almost exactly flat — an uneven result that needed more than one explanation.
Chairman Kevin Warsh answered the question this programme asked on Tuesday: the Fed cannot directly control the price of oil, but it aims to stop relative price changes from broadening. His phrase for the risk gives the episode its title.
Also: what a dot plot is and isn't, why sixteen of eighteen participants projecting higher year-end rates is not sixteen signatures on an order, oil falling while yields rose, and gold settling higher before the announcement that later sent it lower.
In the movers, Intel on the SK Hynix report, Twist Bioscience, Honeywell, Robinhood, Zillow — and J.B. Hunt down 13.3% after warning on driver and fuel costs. The banks get tested too: higher rates do not automatically mean higher bank profits.
The deep dive follows a freight invoice into a furniture showroom. If diesel raises the price of a sofa, the sofa has acquired an oil problem without developing an engine. What would a higher interest rate actually have to change inside that business — and what would it take to know whether it worked?
Nothing here is financial advice.
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