Powell Should Let the Numbers Do the Talking on Fed Day
The central bank chair’s words can be easily misunderstood by a market on guard for rate cuts next year.
Fed Chair Jerome Powell during a news conference following the Federal Open Market Committee meeting in September.
Photographer: Sarah Silbiger/Bloomberg
Federal Reserve Chair Jerome Powell faces a communications conundrum at the central bank’s policy meeting this week. Luckily for him, he could just let the Summary of Economic Projections do most of the talking — and avoid unnecessary misunderstandings.
At issue is how to convey where the Fed is heading next. Central bankers tend to think about monetary policy in terms of inflation-adjusted (or “real”) policy rates. At present, those are at their tightest since at least 2007, and they may passively tighten further if inflation continues to fall. Against that backdrop, policymakers will probably want to surgically cut rates next year to prevent policy from becoming too restrictive and causing unnecessary harm to the economy. In other words, the Fed will probably want to cut rates without immediately easing policy — a tricky message to convey to markets and the public.