Ok, so apparently everyone is going to treat Jerome Powell like that friend at the party who brings his guitar and decides to sing for everyone – we’re all embarrassed for him but nobody is going to say it.
Instead, we sit around and suffer through it and then when it mercifully ends, we all pretend like we liked it: “That was soooo good Jay, really it was.”
And then when he asks what, specifically, we liked so much about it, we have to get creative because if we told him his guitar skills are on point or that his vocals were super impressive, we’d be boldface lying.
Here’s a clip:
Now admittedly, that’s cherry-picked (I mean I could post the entire press conference here, but who would watch it?). But what I would note is that he somehow manages to come across as too blunt and simultaneously confused, an oratorial combo fail that should be impossible.
I have said this repeatedly and no one is going to get it until it’s too late, but you always want to couch the problems and/or potential pitfalls in theoretical terms. Never in concrete terms. That is, you never want to say something akin to: “Well, the risk is that we fall behind and then we have to panic hike which short-circuits the expansion.” That’s too damn blunt.
What you want is something more like this: “The literature shows that in the event the committee were to misjudge underlying price pressures, it’s possible that rate hikes would need to be implemented in such a way that perhaps limits the economy at some point in the future.” In other words, you want to very deliberately say some meaningless bullshit that by virtue of being hopelessly nebulous can’t really be “wrong”. And you want to cite unnamed academic journal articles, because you damn well know no one listening has ever read them if they even exist.
And you want to say all of that in a way that comes across as just condescending enough to make the audience feel reassured but not condescending enough to make them think you’re deflecting.
Ideally, everyone falls asleep.
That’s how you do this “right.”
Instead, Powell just lays it out there on the table and worse, he sounds scared and more than a little out of sorts as he does it.
And what’s with the Ricky Bobby nervous hands? Go back up and watch that clip again and then compare and contrast:
That clip (of Jay, not Ricky) is by no means an outlier. If you’re so inclined, go and watch the entire press conference.
Powell had all the ammunition he needed here to turn this into a clinic in obfuscation. He had upgraded near- and medium-term growth forecasts in the SEP combined with an unchanged long-term growth outlook and a slightly less constructive take on the most recent data (with the latter communicated in the statement). He had a slight upward revision in the inflation forecasts which now telegraph a modest overshoot in 2019 and 2020 (on core). And he had a pretty aggressive downward revision to the unemployment path.
In short, he could have gone any direction he wanted with this, on the way to thoroughly confusing the shit out of everyone and/or guiding markets where he wanted them to go. Instead, he went with straight-up data dependent. And to use another movie reference, you “never go full-data dependent.” Here’s Bloomberg’s take:
Federal Reserve Chairman Jerome Powell showed he’s a data-reliant policy maker who won’t prejudge labor market tightness or guess the growth-boosting effects of Republican tax cuts — a shift away from the economic theories and models used by his predecessors to set monetary policy for the past three decades.
In addition to keeping his remarks short — the press conference was a scant 43 minutes compared to Yellen’s somewhat longer performances — he also declined to be drawn deeply into professorial discussions about the economy.
His message: He’ll know the economy is changing when he sees it.
Again: you “never go full-data dependent.”
Because when you do that, you give up your ability to move the goal posts. Policy stops being a kind of rolling plebiscite where market participants implicitly have a vote. Instead, the previously elusive link between the data and policy outcomes is reestablished, and that has the potential to make markets more responsive to each data point. That could be dangerous against a backdrop where aggressively expansionary fiscal policy and the threat of a trade war has everyone on edge about inflation.
Allow me to underscore that point by excerpting a passage from Wells Fargo’s post-presser quick take. To wit:
Here’s the key message for equity investors and it’s so simple it almost sounds dumb, but so be it. When the data becomes more Hawkish expect the Fed to be more Hawkish; and when the data becomes more Dovish expect the Fed to be more Dovish.
It’s not so much that it’s “dumb” as it is that people don’t seem like they’ve internalized what that actually means. What’s implicit in that assessment is that the Fed is no longer S&P-dependent (the “great” thing about theories and models is that you can use them as cover to remain stubbornly dovish no matter what the data says in the event risk assets are under pressure).
And while that may be a positive development in terms of getting back to how things are “supposed” to work, one wonders if the same people who seem so happy about it today will be singing the same tune when inflation pressures mount more quickly than anyone expects and Powell responds not with soothing “theories and models” that give him an academic rationale to take a wait and see approach, but with a hawkish lean in light of the data, market ramifications be damned.