Powell’s Speech Today Was a Rerun: Improvement, Uncertainty, and Caution

Federal Reserve Chair Jerome Powell and other officials at the organization have shown how they can frame their policies and actions in a way that doesn’t actually promise anything in particular.

Powell’s lunch-time speech at the Economic Club of New York on Thursday, October 19, 2023, was another example of the power of inscrutability. Some, like the Wall Street Journal, took the text as a signal of an “extended pause in interest rate rises.”

“Recent economic figures show “ongoing progress” toward goals, U.S. central bank chair says,” wrote the Journal.

However, looking into all the text, the Fed chair offered a view that did acknowledge improvements but also cautioned about how far there was to go.

Powell noted that there was a downward trend, with shorter-term inflation measures, whether three-month or six-month, running below 3%. “But these shorter-term measures are often volatile,” he immediately added, saying “inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal.”

Adding that no one knows how long favorable data will persist or where inflation is likely to land in the near future, Powell said, “While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent.”

The important phrase to note is “take some time.” Things might go well, but the Fed keeps saying that they, and the economy, can’t count on favorable responses and conditions, no matter how much markets would like that.

Powell addressed other aspects of the economy, like a “gradually cooling” labor market and “a gradual decline toward levels that would be consistent with 2 percent inflation over time.” Or on economic growth and “that a sustainable return to our 2 percent inflation goal is likely to require a period of below-trend growth and some further softening in labor market conditions.” Regarding monetary policy — primarily meaning interest rates to many — Powell said, “My colleagues and I are committed to achieving a stance of policy that is sufficiently restrictive to bring inflation sustainably down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective.”

All the encouragement is in the context of uncertainty and the time it will likely take to achieve their goals. Perhaps everything will proceed swimmingly, but there is no way to promise that.