Fed Thoughts: Stargazing in the Mountains

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Fed Thoughts Sept 2018

Vincent Reinhart

Vincent Reinhart - Chief Economist & Macro Strategist

Federal Reserve (Fed) Chairman Jerome Powell devoted the bulk of his inaugural opening act at the Kansas City Fed’s economic symposium in Jackson Hole to three features of the economy that, in the long run, are the “stars” by which “…policymakers should navigate.”1 However, following his habit of draining drama from any appearance, he said at the outset that “…there are risk factors abroad and at home that, in time, could demand a different policy response, but today I will step back from these.” Nonetheless, observers could not help themselves from searching for some hint on current policy in the 23-page speech delivered by the Fed chair. Luckily for his readers, staff labelled the last section “The Current Situation” for those who wanted to cut straight to the chase.

The dovish sentiment plucked from this section was that “While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating.” Context matters because the Fed chair was describing his expectation that the risks balance along “…the current path of gradually raising interest rates...” That is, Powell was defending the dots mapping out four quarter-point hikes in 2018.

1Available at https://www.federalreserve.gov/newsevents/speech/powell20180824a.htm.

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