Fed Chairman Powell to Markets: I Hear You

ATLANTA — This particular was only 16 days ago when the Federal Reserve raised interest rates as well as its chairman, Jerome Powell, conveyed which he was fundamentally confident about the outlook for the United States economy.

To markets, he came across as excessively dismissive of the message which turbulent stock, bond as well as commodity prices were sending. His comments were interpreted as implying the Fed was dead-set on pushing interest rates higher to prevent some hypothetical future inflation, consequences be damned.

This particular’s clear which a jaw-dropping series of market swings, combined with some hints which a broader economic slowdown could be on the way, have made Mr. Powell rethink things.

Two weeks ago, the consensus of Mr. Powell’s Fed colleagues was which two more interest rate increases were likely This particular year. In his message Friday, in a panel at the American Economic Association, he decidedly did not reaffirm which projection. Instead, his emphasis was on flexibility, adaptability as well as open-mindedness.

The markets loved This particular — as well as why wouldn’t they? Mr. Powell’s appearance essentially repaired the damage coming from his indifferent tone of two weeks ago.

The market response Friday — the S&P 500 was up more than 3 percent within the afternoon — was to his opening comments, which Mr. Powell read coming from notes. This particular was a deliberate as well as precise effort, not some off-the-cuff remarks. Sometimes, markets overreact to extemporaneous remarks a Fed chief makes in a news conference or in a congressional hearing; This particular was not one of those cases.

This particular also helped which the dovish message arrived less than two hours after an employment report which showed exceptionally strong job growth in December.

For certain monetary policy traditionalists, the robust wage growth in which report — up 3.2 percent over the past year — could point to inflation worries. although within the panel, Mr. Powell made a point of saying the wage growth number did not alarm him as well as should not be taken as a signal which prices were set to spiral out of control.

This particular is actually a safe bet which the Fed will not be raising rates within the early months of 2019, as well as will resume its tightening campaign only once the global outlook is actually clearer, or once a more substantial inflation risk appears within the United States.

This particular’s particularly clear which the lessons of history loom large in Mr. Powell’s thinking. In 2015 as well as early 2016, when he was a Fed governor as well as Janet Yellen was chairwoman, an eerily similar episode dragged down U.S. economic growth so much which This particular can be thought of as a mini-recession.

In which episode, the Fed’s push to raise interest rates helped fuel a vicious cycle of slower growth overseas, falling commodity prices, a stronger dollar as well as lower inflation.

There are differences This particular time around — in particular, a trade war with China is actually a big factor within the slowdown in Chinese growth. Another difference is actually which the United States economy is actually stronger today, with an unemployment rate below 4 percent for six straight months, creating the overheating risk within the United States higher.

although the similarity comes within the ways which actions taken by Fed officials in Washington can ripple around the globe as well as come back to bite the United States economy in unpredictable ways.

The fact which Mr. Powell brought up the episode coming from 2015 as well as early 2016 — within the prepared portion of his comments, as well as in response to an open-ended question about the economy — is actually a sign which he thinks This particular is actually relevant to current policy.

Will 2019 be as hard a year for the economy as financial markets seem to be bracing for? The economic data is actually still quite strong, none more so than the latest job numbers. although, as Mr. Powell said, those are backward-looking indicators, as well as the Fed must make policy by looking forward.

The loud-as well as-clear message is actually which Mr. Powell as well as his colleagues aren’t going to put their hands over their ears, ignore these messages coming from markets, as well as carry on as planned.

as well as which, in turn, seems to make some of the darker possibilities for 2019 a lot less likely.