Fed’s Powell Orchestrates a Masterful Move
(Bloomberg Opinion) -- Federal Reserve Chairman Jerome Powell has taken the first steps in remaking the central bank in his "plain-English" image, which can only be a good thing for financial markets.
Earlier this week, news leaked that the central bank was considering holding a press conference following each Federal Open Market Committee meeting instead of after every other one like it does now. The reports set off a mini-storm. Speculation rose the Fed would implement this new policy immediately, which could mean the central bank was considering accelerating the pace of interest-rate increases as soon as August. After all, investors had become accustomed to the Fed only making a major policy move at meetings followed by a press conference. Now, every meeting would be "live."
But in a masterful move, Chairman Jerome Powell managed to confirm the policy while also putting financial markets at ease. Rather than announcing the change in the official statement outlining the Fed's plan to raise its target for the federal funds rate for the seventh time since December 2015, Powell waited until the start of his press conference to drop the bomb, noting that the policy wouldn't start until January. Here's Powell’s reasoning:
“My colleagues and I meet eight times a year and take a fresh look each time at what is happening in the economy and consider whether our policy needs adjusting. We don’t put our interest rate decisions on auto-pilot because the economy can always evolve in unexpected ways. History has shown that moving interest rates either too quickly or too slowly can lead to bad economic outcomes. We think the outcomes are likely to be better overall if we are as clear as possible about what we are likely to do and why. To that end, we try to give a sense of our expectations for how the economy will evolve and how our policy stance may change.
As Chairman, I hope to foster a public conversation about what the Fed is doing to support a strong and resilient economy. And one practical step in doing so is to have a press conference like this after every one of our scheduled FOMC meetings. We’re going to do that beginning in January. That will give us more opportunities to explain our actions and to answer your questions. I want to point out that having twice as many press conferences does not signal anything about the timing or pace of future interest rate changes. This change is only about improving communications. My FOMC colleagues and I will also continue to issue our economic projections on the existing quarterly schedule.”
Powell threaded the anxiety needle. His "plain-English" explanation makes clear that there will be no shock and awe in monetary policy making. Market trading based on the dual unknowns of September and December meetings was restored. Live FOMC meetings and true uncertainty would not begin until next year.
The wimpy hiding-behind-the-skirts policy of only four press conferences a year -- gone. Verbose statements extending past 800 words (the June statement ran all of 320 words) -- gone. Hiding behind shady data that incite more questions than answers -- gone.
What’s next? The distracting and meaningless dot plot? Give Powell time. Rome wasn’t built in a day and the Fed cannot be reformed overnight.
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