Editorial Board
The Fed's Messaging Needs an Upgrade
Central banks can do forward guidance or they can be nimble — but not both.
A work in progress.
Photographer: Liu Jie/Xinhua via Getty Images
Federal Reserve Chairman Jerome Powell’s speech at last week’s central banking conference in Jackson Hole, Wyoming, was brief — but financial markets took notice. The S&P 500 fell sharply as investors adjusted their thinking on how tough the Fed was willing to be to get inflation back under control.
Powell underlined that restoring price stability is the Fed’s “overarching focus” and conspicuously avoided saying that higher unemployment might impede that task. Investors saw this as a somewhat new message — and indeed it was. Yet the central bank still has work to do in explaining itself intelligibly.