Last Wednesday, Federal Reserve Chairman Jerome Powell said he wanted to speak directly to Americans and began by saying:
“Inflation is much too high and we understand the
hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the
tools we need and the resolve it will take to restore price stability on behalf of American families
and businesses.”
He then pivoted into talking about the jobs market and growth before circling back to inflation to say that disruptions to supply have
been larger and longer lasting than anticipated, and price pressures have spread to a broader
range of goods and services.
That’s not what the market needed.
The Fed Chair’s main job is to set interest rates but closely behind that is instilling confidence.
What the public and the market needed to hear was that prices are going to come down. He needed to deliver bold leadership, if not a bit of swagger. That’s what he was able to do at the peak of the pandemic crisis.
Instead, this time we have a Fed that’s still licking its wounds from bad inflation forecasts and speaking apologetically. No one knows what’s coming next but Americans want to feel like someone else does. They want a confident-sounding professional at the microphone telling them not to worry.
“The rate of inflation will be falling imminently, we have no doubt,” he could have said. Then went on to craft a narrative of why prices will stop rising. “Don’t worry” needed to be the message.
He should have combined that with a lecture on why rates don’t need to go excessively high to achieve that. Arguing that a flattening of prices is already in the pipeline.
What about China?
He can’t control China but he could have used the press conference to urge China to open ports, offering a reminder that China is a partner and chief beneficiary of globalization. And that it has a responsibility to ensure the global supply chain if it wants to be a part of it.
Ultimately, that kind of performance might have come to haunt him six months from now. But so what? This is the hand he’s been played. If he can’t instill confidence or get it right, then resign. The institution is more important than the man.At some point in the very near future, Powell needs to push his chips in. He’s the only person who can restore confidence in longer-term inflation expectations and the underlying economy. He needs to follow up this wimpy effort with something much more powerful.
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