New Fed Chairman Powell powers through rate hike and raises hawkish bets
New Fed Chairman Powell powers through rate hike and raises hawkish bets
New Chairman, new style.
Mr Jerome Powell who was handpicked by President Trump took over from Prof Janet Yellen on 5 Feb 2018. During Yellen’s tenure from 2014 to 2018, Fed raised US interest rates from 0% to 1.25-1.50% range. As the first Chairwoman, Yellen took over from “heli-ben” Ben Bernanke’s money printing FOMC and had to make several tough decisions.
How did Mr Jerome Powell handle the market’s expectations in the current bullish environment?
He started by raising rates in his first meeting and conducted a brief press conference right after his decision.
What were the changes?
On Economic Outlook
Jan: “Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. “
Mar: “Information received since the Federal Open Market Committee met in January indicates that the labor market has continued to strengthen and that economic activity has been rising at a moderate rate.”
Pace of economic activity downplayed from solid to moderate.
On Employment, Household Spending & Business Fixed Investment
Jan: “Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low.”
Mar: “Job gains have been strong in recent months, and the unemployment rate has stayed low. Recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.”
Elaborated further opinions on strong job gains, low unemployment rates but highlighted slower pace of growth in household spending and business fixed investment.
On Economic Activity
Jan: “The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong.”
Mar: “The economic outlook has strengthened in recent months. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong.”
Assessment of economic outlook in recent months is positive and projected to be strong over the medium term.
On Inflation
Jan: “Inflation on a 12‑month basis is expected to move up this year and to stabilize around the Committee’s 2 percent objective over the medium term.”
Mar: “Inflation on a 12-month basis is expected to move up in coming months and to stabilize around the Committee’s 2 percent objective over the medium term.”
Expectations of higher inflation levels within months than over the year.
Mr Jerome Powell - A new breed of Fed Chairperson
Mr Chairman Powell did not graduate from university in Economics nor Statistics, but he earned his Politics degree from Princeton and Law degree from Georgetown. Who says you need to be a Professor in Economics to run a Central Bank?
Not only that, Mr Powell was an investment banker, a private equity partner at Carlyle Group and former under secretary of Treasury. He might be one of the wealthiest Chairperson of FOMC.
As a markets person, a deal maker and a politician, Mr Powell has the very different CV from his predecessors. Both Prof Bernanke and Prof Yellen are well known academics and well respected economists. Mr Powell is definitely not an economist by training. He might be a practicing economist, but far from one in a purist sense.
One should take note that he will not speak like an economist, and most probably he will not behave like one as well. Forget about how you could dissect the FOMC minutes, statements and speeches for clues, tips and pointers during the Bernanke, Yellen era.
My feel is, watch and hear Powell but be very aware of how and what the markets think and behave.