The buzz around the expansive, two-story lobby of the Jackson Lake Lodge before Federal Reserve Chair Jerome Powell spoke on Friday morning was that any attempt to clarify the economic outlook in an environment as hazy as the current one would be nearly impossible to deliver.
Maybe Powell will talk about his long-term view, the thinking went, given how challenging it would be to offer any real clarity on what’s coming next.
“If he talks about the current juncture, I think it will be a difficult speech,” Kristin Forbes, a professor at the Massachusetts Institute of Technology, told me on Thursday evening. “You don’t want to commit when you just don’t know.”
As it turns out, Powell focused on the near-term outlook anyway. And the upshot of his talk at the Kansas City Fed’s annual symposium was mostly a reiteration of what we already knew: The Fed would be proceeding cautiously, but the economy might not be cooling as much as we previously thought.
Powell didn’t commit to any particular way forward, leaving the door open to additional interest-rate increases while declining to say what would be coming—or when. His closing line, that the central bank would “keep at it until the job is done,” was lifted almost verbatim from the speech he delivered in the same setting a year ago.
As a result, this year’s 15-minute speech “was extraordinarily vague on the policy outlook and raised more questions than it provided answers,” wrote Stephen Stanley, chief U.S. economist with Santander. “I believe that this accurately encapsulates the Federal Open Market Committee’s current thinking.”
In some ways, yes—the speech did suggest that Fed officials are continuing to debate the impact their tightening efforts have had so far and remain unsure how much further they will need to go. The central bank has so far raised rates 11 times since March 2022, most recently hiking them by a quarter-point in late July to a level of 5.25% to 5.5%.
And while Fed officials have penciled in one more quarter-point interest-rate hike this year, it remains far from certain whether they will ultimately move forward with it.
One point of debate appears to be over the lags with which monetary policy operates. Powell said on Friday that it seems there could be “significant further drag in the pipeline.” In layman’s terms, he means that the economy might be on track to slow substantially even if the Fed declines any additional rate increases, paving the way for officials to pause their tightening effort as they wait for the full impact to trickle through the economy.
It was a notable line, in part because of how it stood in contrast to a speech from Fed governor Christopher Waller in mid-July that was focused entirely on the idea that, as the title suggested, “policy lags may be shorter than you think.”
“Pausing rate hikes now, because you are waiting for long and variable lags to arrive, may leave you standing on the platform waiting for a train that has already left the station,” Waller said at the time.
There’s also potential disagreement over the outlook for housing inflation, which at the moment is the single largest contributor to overall inflation. Powell suggested on Friday that he expects housing inflation to decline toward its prepandemic level. But that view again seems to clash with recent remarks from Waller and Fed governor Michelle Bowman, both of whom have raised concerns that long-awaited relief in housing costs could be short-lived.
At the same time, for Powell, the “extraordinary vagueness” is also by design. Given where the Fed is in its current monetary policy tightening cycle, and given its strict dependence on reacting to incoming data, he was loath to box officials into any particular policy path. And he probably was wary of delivering a speech that would send any dramatic signal to financial markets in either direction.
Viewed against that score card, the overwhelming response from economists and analysts that there was nothing new to see here was exactly what the Fed was trying to achieve. Now, it’s a matter of waiting for what the next rounds of labor and inflation data show before there will be any new signals suggesting where interest rates are headed next. It was a reaffirmation, in other words, of the Fed’s oft-touted commitment to “data dependence” as it waits to see whether price growth is finally, and unwaveringly, headed down to target levels.
“This uncertainty,” Powell said, “underscores the need for agile policy making.”
A few hours after his speech on Friday, as the symposium attendees were breaking for lunch, Powell stood on an upper-level balcony overlooking the lodge’s lobby, tapping his hands against the railing as he surveyed the crowd below. To his left, out the panoramic floor-to-ceiling windows, stood the jagged and overlapping peaks of the Tetons.
From this vantage point, it’s nearly impossible to tell where one peak ends and the next one begins. Powell glanced around the lobby, framed by enormous paintings of American bison and grizzly bears. Then, he turned and walked back down the hallway, away from it all.
Write to Megan Cassella at [email protected]
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