Powell didn’t fall into that trap Friday in Jackson Hole, and he can thank the scripted format. Given that advance planning, Powell was able to effectively and unambiguously bat down almost all of the dovish narratives that have circulated in recent months.
• He said that the encouraging July inflation reading, while welcome, “falls far short of what the committee will need to see before we are confident that inflation is moving down.”
• He corrected the record on whether the Fed funds rate had reached a level consistent with “neutral.” (An off-the-cuff comment about the “neutral” rate in July had led markets to think he might stop raising rates soon, but he clarified that he was referring to the longer run neutral rate that’s appropriate when growth is balanced and inflation is around 2%.) “In current circumstances with inflation running far above 2% and the labor market extremely tight, estimates of longer run neutral are not a place to pause or stop,” Powell said Friday.
• Finally, he made clear that the Fed has no intention to reverse course and lower rates anytime soon, noting that “restoring price stability will likely require maintaining a restrictive policy stance for some time.” He added: “The historical record cautions strongly against prematurely loosening policy.”
Frankly, nothing that Powell said was entirely new, but the packaging was better. Powell has long said that he needed to see a “series” of improving inflation reports before changing his tune. And anyone who had bothered to dig out the Fed’s Summary of Economic Projections could have cleared up potential misunderstandings about his previous remarks on “neutral” and the committee’s commitment to keeping rates higher for longer. But this speech was almost impossible to misinterpret from the get-go.
Needless to say, carefully tailored market messaging is critically important for a Fed chair facing the worst inflation in 40 years. The Fed can only control short rates, and it depends on the markets to transmit its policies more broadly through higher borrowing costs and lower asset prices. These are the mechanisms that bring demand into balance with supply, in part by making credit more expensive and, more crudely, by making people feel a little less wealthy. If markets don’t play along, it makes the Fed’s job harder. The Fed’s policies have been working in some parts of the market — mortgage rates have rapidly cooled the housing market — but corporate bond spreads and stocks have been somewhat defiant.
Powell obviously performs better in this format. The message he’s been trying to convey for months finally got across in a clear and consistent fashion, and now the other voters on the Federal Open Market Committee won’t need to rush out to clarify the chair’s intentions as they have after recent press conferences. Powell should use Friday as a template going forward. But, of course, he’s also going to need to go before the press again at next month’s post-meeting conference (as he should; transparency is a public good). Here’s hoping that he finds time for media training in the interim.
More From Other Writers at Bloomberg Opinion:
• Jerome Powell Is Fighting Inflation — and Winning: Karl Smith
• This Economy Is Proving Too Hard for Economists: Jared Dillian
• Inflation’s Winners Need to Help Out the Losers: Thomas Black
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Jonathan Levin has worked as a Bloomberg journalist in Latin America and the U.S., covering finance, markets and M&A. Most recently, he has served as the company’s Miami bureau chief. He is a CFA charterholder.
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