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Mohamed A. El-Erian

Fed’s Powell Cheers Markets But Risks a Mistake

Investors will happily continue to give the Federal Reserve chair the benefit of the doubt, but there’s good reason to question his characterization of policy being “well positioned.”

Powell’s dovish Jackson Hole speech soothed markets but risks being out of touch with economic reality.

Powell’s dovish Jackson Hole speech soothed markets but risks being out of touch with economic reality.

Photographer: Daniel Acker/Bloomberg

Federal Reserve Chair Jerome Powell’s speech Friday at the annual Jackson Hole forum was consistent with his very gradual and highly measured approach to policy changes – an approach that financial markets love as it implies a longer period of very loose liquidity that fuels ever higher asset prices. The real question, however, is whether the speech will end up being out of touch with actual economic and financial developments as they unfold over the remainder of this year and beyond.

By refraining from breaking new ground or providing operational details of any evolution in policy, both of which would have inevitably tilted more hawkish at this point, Powell gave investors more reason to take stocks and bonds higher. And indeed, stocks rallied to a new record while bond prices also rose.