Bayonets Forward! Jay Powell and the Defense of Little Round Top


Joshua Chamberlain is not exactly a household name in today’s society, but he’s a character in American history that in this portfolio manager’s opinion has been given short shrift.  Born in Maine in 1828, Chamberlain compiled an impressive career in public service, including serving as the 32nd Governor of the State of Maine and a founding member of the Maine Institution for the Blind.

But what represents his true crown jewel were his efforts at the battle of Gettysburg where he led the 20th Maine Regiment in defense of the left flank on Little Round Top.  Understanding full well the value of that strategic position, he made the decision to maintain that ground at all costs. 

Low on ammunition and with significant casualties, Chamberlain reported: “At that crisis, I ordered the bayonet. The word was enough.”  Little Round Top was defended. In that moment of courage, Joshua Chamberlain earned the Congressional Medal of Honor.  Lots of folks out there don’t know that.

What lots of folks do know is that on Sunday, the FOMC conducted an off-cycle meeting to discuss the current state of policy in the face of the coronavirus outbreak. By late afternoon, the Fed announced an unprecedented suite of policy measures.

Like Chamberlain, ammunition was low, casualties were high and the current state of the US economy going into this crisis was just too valuable territory to not attempt to defend at all costs. 

The list of the FOMC’s policy adjustments includes:

  • A full 100 basis point cut to the Fed Funds rate, returning that benchmark rate back to the zero bound.
  • $500 billion of US Treasury purchases to keep baseline rates attractive for businesses and consumers.
  • $200 billion of Agency MBS purchases to keep the cost of mortgage credit attractive for consumers.
  • Extension of US dollar swap lines to large foreign central banks to provide relief for expected US dollar shortages globally.

Chamberlain’s bold move ultimately held Little Round Top and was a decisive offensive leading to the resolution of the US Civil War.  History has shown that bold “All-In” moves can turn the tide when the tide needs turning.

The Fed is responding to the fast-moving stresses of this situation and is taking preemptive measures. We believe this crisis will be ultimately resolved across three levers: the resources focused on the heath care response, the fiscal response to small- and medium-sized businesses and the monetary response. Two of these levers are still widely unknown. The Fed’s unprecedented ‘All-In’ move has put one of these levers in motion.    

I came across an obscure Dixieland song by a guy named Steve Earle with this line: “I am Kilrain of the 20th Maine and I’d march to hell and back again for Colonel Joshua Chamberlain.” We shall see over the coming weeks if markets have the same faith as Kilrain in the “Bayonets Forward!” offensive recently commanded from the Fed.

Jeff MacDonald
Head of Fixed Income

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