Markets Connect the Dots and Give Powell a Break
This time, the Fed’s bluff wasn’t called, even if forecasts for the broader economy weren’t fully convincing.
Powell’s uncertainty led to greater believability.
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Sometimes honesty is the best policy. At one point Wednesday afternoon, the markets appeared to be reacting negatively to Jerome Powell of the Federal Reserve, as he admitted to uncertainty — some said confusion — over the direction of the economy. Naturally, that’s worrying when it comes from the head of the world’s most powerful monetary institution. But there’s also an element of reassuring believability. If anyone tells me with certainty where the US economy is heading at present, I’m inclined not to trust them. I’m sure many feel the same way. And so Powell’s acknowledgement of uncertainty in these strange times seems to have given him more credibility. As a result, his attempt to execute a “hawkish pause” — no change in interest rates while convincing the market that higher rates were more likely in the future — succeeded. Bond yields rose, and stocks fell.