Powell Needs to Side With Markets at Jackson Hole
If rate cuts really are stimulative, they will work now to halt a worsening economy, not cause the Fed to “run out of bullets.”
It’s time for Federal Reserve Chairman Jerome Powell to get more aggressive.
Photographer: Bloomberg
When Federal Reserve Chairman Jerome Powell kicks of the central bank’s annual Jackson Hole symposium with a speech on Friday, he should do nothing less than signal that a more aggressive approach to easier monetary policy is warranted by opening the door to a 50-basis-point cut in the target federal funds rate next month.
The market clearly wants the Fed to get more aggressive by signaling more rate cuts at a faster pace. Indeed, the fact that yields on 10-year Treasury notes have been consistently below three-month Treasury bill rates since May suggests that the current fed funds range of 2% to 2.25% is too high. With the yield curve at a negative 36 basis points, a 25-basis-point cut in the funds rate will not be enough to un-invert the curve. A positive curve would signal the market is backing off its aggressive view about rate cuts. And the plunge in yields culminating in a new record low for 30-year bonds last week suggests fear that the U.S. economy may be headed into a recession.