Fed Chairman Powell in Dallas

Last night at the Dallas Federal Reserve Bank, Chairman Jerome Powell answered questions posed by Dallas’ President Robert Kaplan. I found Chairman Powell exactly the kind of leader one would want in that position—a studied approach, open to multiple viewpoints, a listener, but also clearheaded in his role to serve the public given his mandate by Congress. He visits Capitol Hill frequently but also engages with the 12 districts to hear on-the-ground news of business practitioners. His apolitical stance is refreshing and encouraging. His job is to hold watch over the American financial system, deeply connected to the globe’s, with an objective, transparent, steady approach. He is a man for the times. Some key paraphrased comments follow:

 In the future, a press conference will be held after every FOMC meeting rather than the four currently. This means that interest rates could be adjusted at any meeting. He mentioned that over eight years, there was no change in the federal funds rate, and now we are around 2-2.25%, in an attempt to normalize monetary policy. Inflation is on target, he mentioned, and he was positive about the economy. He understands the delicate balancing act between raising rates too fast or slow, each with their own unique challenges to monitor in terms of markets and economy. Ie., the pacing and amount of rate change are the factors.

 Chairman Powell said his primary goal with respect to the economy is to extend the economic expansion we have witnessed over the last many years. The Fed will continue to reduce its balance sheet as well. Referring to his recent Jackson Hole, Wyoming speech, he said his message was simply to bring the idea of risk management to the fore. When presented with uncertainty, you take a slower thoughtful approach. A Marketplace reporting noted, “The slowing housing industry — which Powell pointed out is not simply about rates but also a scarcity of lots and labor — was also mentioned. Powell noted that many Americans have never lived in an environment of high mortgage rates.” However, housing has become less of an [economic] driver than in the past. It’s still a forward indicator.

 On the trade front, Powell said that the new tariff policies have not shown up in the data yet. But he has heard from business leaders about the higher costs associated with the policies. He also noted that often businesses observe trends in costs and inflation before the data reveals the trend. Monetary policy is guided by both the anecdotal and the evidence in the data from the economic activity across the entire country and Fed banking system. It remains to be seen how the trade policies play out—whether it’s the case of fairer and freer trade or greater protectionism that means less growth and higher inflation. 

 The global economy is showing signs of a slow down. Half of economic activity involves emerging and developing markets, he mentioned, and a large part of their activity comprises global GDP growth. 

 A main observation made by Powell about the recession and financial crisis was the lack of imagination. People and policymakers did not see the vulnerabilities in the financial system. In a warning, he noted that the U.S. is on an unsustainable path fiscally, with high debt-to-GDP levels. The health care system and spending on entitlements need to be addressed. 

 His presentation of fact and inferences was sober and credible. Powell is a credit to the American economy and to global financial leadership.