I like new Fed Chair Jerome Powell and I think he’s one of only a few good choices the President has made so far in terms of appointees and cabinet positions. Powell did his first press conference yesterday on the heels of taking interest rates higher by another quarter of a point.
Powell’s going to shake the institution up a little bit, according to both reports and his own comments.
I only mean it partially sarcastically when I say that we are #blessed by the fact that he will now be calling the economy in real-time. He’s going to be looking at the data as it rolls in to forecast when inflation is a problem and when an economic recession is beginning. If he can do this, god bless us everyone. I’m skeptical that recessions can be forecast or predicted by a guy and his intuition / experience, but maybe we can get close enough.
Federal Reserve Chairman Jerome Powell showed he will be guided by the U.S. economy’s performance rather than the theories and models relied upon by his predecessors to set monetary policy for the past three decades.
Fresh from overseeing his first policy-setting meeting and its first interest rate hike of 2018, Powell signaled he won’t try to guess the limits of the labor market or the growth-boosting effects of Republican tax cuts.
His message: He’ll know the economy is changing when he sees it. For now, his Fed is on track to raise rates at least twice more this year and possibly three times.
Okay, so a non-academic approach to managing the economy. Powell is a markets and business and private equity pro – he’s a Carlyle OG and maybe this experience will help him with his forecasting. He probably couldn’t do any worse than the Fed’s prior forecasting methods both leading up to the crisis and in its aftermath. Their GDP forecasts and rate hike expectations have been hilarious pretty much every year and they’d totally missed the market feedback loop from housing, stocks and the banking system last decade.
I also respect the fact that he stands up to his fellow Republicans when they’re doing something dumb – like when he walked around the Capitol during the 2011 debt ceiling debacle, binder in hand, warning them against playing chicken with the economy (f*** you, Ted Cruz, still ain’t forgot). A voice for calm and measured behavior, amidst a party that seems to have temporarily forgotten that calm and measured used to be the GOP archetype when it came to the economy:
Powell, a former Carlyle Group executive, had traded a high-finance job to work for $1 a year at one of Washington’s quiet think tanks. He was traveling the halls of Congress urging calm and restraint. In contrast, flashy businessman Donald Trump was tweeting: “The Debt Limit cannot be raised until Obama spending is contained.”
So we’ll root for Powell to do things differently and hopefully be further out front ahead of the next down-cycle, preparing us for an easier landing or choking off excess before another Minsky Moment occurs.
Greg Ip at the Wall Street Journal is referring to Powell’s job as Mission: Impossible, in that he must do something that the Fed has never accomplished before – drive the unemployment rate higher by pulling people back into the participating labor force. At 4.1% we’re below the natural rate of unemployment (thought to be 4.5%).
Pulling in “new” labor participants while hoping for just the right amount of wage inflation (but not too much!) on the heels of the President’s massive fiscal stimulus (tax cuts) and somehow continuing to normalize the Fed Funds Rate and not crash asset prices – Mission: Impossible seems apt.