We Are All Epsilon Theorists Now

Central bank policy has inverted. What matters now isn't what the Fed actually does with interest rates or its balance sheet. What moves markets is what central bankers say about investor sentiment and economic conditions. The policy is the narrative, and everyone in the system knows this.

• Powell reversed course in a matter of weeks. In December, the Fed chair signaled he'd keep tightening based on economic data. By January, he'd pivoted completely toward accommodation. Markets didn't care about the shift in thinking. They celebrated that the story had changed.
• Central banks have stopped pretending their words are predictions. Internal research now quantifies how central bank "non-monetary communication" (statements about risk, investment conditions, economic outlook) moves asset prices more reliably than actual policy decisions. They're modeling the impact of their own messaging.
• This feedback loop is now openly acknowledged. Market participants, central bankers, policy insiders all understand that central bank communication about market sentiment is itself the primary policy tool. The knowledge is shared. The pretense is gone.
• Fundamental analysis has become economically irrelevant. What companies actually earn, what assets are actually worth, what economic data actually shows: none of this drives pricing anymore. The narrative framework determines price. Reality is secondary.
• The system is stable only as long as everyone continues to believe in it. But belief requires constant reinforcement. Each time a central banker recalibrates the story, each time markets respond to words rather than conditions, the mechanism becomes more visible. What happens when visibility breaks the spell?