Fed Chair Jerome Powell Schools the Inflation Hawks
Reducing monetary stimulus is appropriate at this stage of the recovery, but it won't do anything to curb the recent spike in prices.
Jerome Powell’s Jackson Hole speech pleased just about everyone except inflation hawks, and that’s just fine.
Photographer: Daniel Acker/BloombergEarly in his tenure as head of the Federal Reserve, Jerome Powell was known for making some incredible communication gaffes that roiled markets and left central bank watchers unclear on the direction of monetary policy. Who can forget the time in December 2018 when he said the federal funds rate was still a long way from neutral even after several increases, spurring concern the Fed was out of touch given the clear signs that the economy was decelerating?
No one can say now that he’s out of touch, except for maybe the inflation hawks. Those folks are likely to be the only ones disappointed in Powell’s virtual speech Friday at the Kansas City Fed’s annual Jackson Hole symposium. He managed to becalm financial markets while also acknowledging that it’s time for the Fed to start paring back on its stimulus measures and delivering a case study in what does and does not constitute inflation. Bonds rallied along with stocks and measures of inflation expectations held steady, all a sign that Powell hit the right notes in convincing investors that the Fed has things under control.