What Jerome Powell Really Thinks
Once again our proprietary algorithms decode the thought bubbles floating behind his spoken words at yesterday's press conference
Some of the best minds in finance and economics spent yesterday afternoon parsing the words of Fed Board Chair Jerome Powell as he announced that the Federal Open Markets Committee had decided to, uh, do nothing. More interesting, however, was what he was actually thinking at the time.
Our decisions that we’re going to make on the policy rate are going to depend on the incoming data, how the outlook is evolving and the balance of risks, as always. And we’ll look at the totality of the data.
“Look. We don’t really have any more idea than you guys about what the rest of the year will bring. The latest data is hot. We think it’s going to cool. We decided not to decide anything today … How the hell am I going to dance another 44 minutes of qustions?”
If we did have a path where inflation proves more persistent than expected, where the labor market remains strong … that could be a case in which it would be appropriate to hold off on rate cuts.
“You guys do know how this works, don’t you? Jobs, wages, prices, blah, blah, blah…”
We’ve set ourselves a test for us to reduce policy restriction. We’d want to be confident that inflation is moving sustainably down to 2%. … We’d be looking at inflation expectations. We’d be looking at the whole story. But clearly incoming inflation data would be at the heart of that decision.
“Okay, only a half hour to go.”
We’ve said is that we need to be more confident. And my colleagues and I have said that we didn’t see progress in the first quarter. And I’ve said that it’s going to take longer to reach that point of confidence.
“Everyone keeping track of who said what and when?”
[Slowing the pace of Quantitative Tightening] is a plan we’ve long had in place … It really is to ensure that the process of shrinking the balance sheet down to where we want to get it is a smooth one and doesn’t wind up with financial market turmoil the way it did the last time we did this.
“Everybody remember the Taper Tantrum? That was on Ben’s watch.”
I was around for stagflation. It was 10% unemployment. It was high single-digit inflation and very slow growth. Right now we have 3% growth … and we have inflation running under 3%. I don’t see the ‘stag’ or the ‘flation.’
“Nailed it! And why doesn’t anyone ask how I’ve managed this amazing soft landing?”
[Any discussion of a rate hike?] The policy focus has really been about holding the current level of restriction. That’s where the policy discussion was in the meeting.
“Yes, of course, the hawks had to have their say, but can’t you tell I’m trying to avoid spooking the markets?”
We’re always going to do what we think the right thing to do for the economy is when we come to that consensus view …. It’s hard enough to get the economics right here and if we were to take on a whole new set of factors and use that as a new filter, it would reduce the likelihood we’d actually get the economics right.
“I know that no one believes this, but what am I supposed to say? Of course, I know there’s an election. And, yes, I saw the Wall Street Journal story about Trump’s people planning to pack the FOMC with political hacks. But, it’s really true that our job is hard enough without tracking the latest polls in Pennsylvania.”
It will take some time, but we will succeed and we will bring inflation back down to 2%. That’s what we’re doing and we know it is painful and inconvenient, but the dividends will be paid and be very large and everyone will share in those dividends.
“Think of me as your favorite physical therapist. If it doesn’t hurt at least a little, it’s not working.”
If you listen to my 18 colleagues on the FOMC, you’ll see that we do not lack for a diversity of voices and perspectives.
“And, of course, they all have a right to their own opinion, but I’m the one who issues the parking passes.”