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Mohamed A. El-Erian

Powell Can Roil Markets Now With Just a Word

Remarks by the Fed chair starkly illustrate the central bank’s dilemma.

Can’t win.

Can’t win.

Photographer: Susan Walsh-Pool/Getty Images

Judging from the initial market reaction to remarks by Federal Reserve Chair Jerome Powell on Thursday, he would have been well advised to follow Aaron Burr’s advice to Alexander Hamilton in the hit musical “Hamilton”: “Talk less, smile more.” This is not because he said anything inherently wrong. He didn’t. Rather, it is because whatever he had to say had little chance of resonating well in markets given where they have been and where they wish to go.

Few economists or policy makers could take issue with what Powell said at a Wall Street Journal webinar. He was right to point to the rising likelihood of a pickup in inflation, which, based on technical factors and current economic conditions, is more likely to be a one-off phenomenon than the start of a serious inflationary process. Of course, the recent volatility in U.S. Treasuries in what is regarded as the most liquid financial market has caught his attention. And it should come as no surprise that the Fed will remain patient, maintaining its current policy approach until it believes that labor market slack is well on the way to being eliminated.