Chairman Powell’s first Fed presser won’t go viral; that’s a good thing

Former Bank of England Governor Mervyn King once suggested that the goal of monetary policy was to be boring.

If a central bank does its job well, King opined, inflation will be fairly stable, the economy will not suffer massive ups or downs, and no one will pay much attention to the central bank’s latest press conference because they will already understand what the central bank is doing.

{mosads}Newly-confirmed Fed Chairman Jerome Powell did a pretty good job of living up to King’s ideal yesterday. He presided over a meeting of the Federal Reserve’s Federal Open Market Committee (FOMC) that delivered exactly what everyone had been expecting: a quarter-percentage-point increase in the federal funds rate.

The biggest excitement came in a change in the language of the committee’s statement that “the economic outlook has strengthened in recent months.” Not exactly the kind of stuff that goes viral.

Chairman Powell, perhaps taking his cue from the kerfluffles of both his predecessors, Ben Bernanke and Janet Yellen, in communicating with the media and the public, worked very hard not to ruffle feathers.

After this press conference, it seems most unlikely that anyone will come up with a nickname for Powell nearly as snarky as the  “Helicopter Ben” title bestowed on Bernanke.

Chairman Powell also managed to avoid one of the most contentious issue of the day: When asked about tariffs, he replied, “We don’t do trade policy here at the Fed.”

He confirmed that FOMC members expect to raise the federal funds rate three times this year, but pointed out that future decisions will be made after consideration of future economic developments — very reasonable, very bland, very reassuring.

Is there anything to get excited about here?

For the moment, no. But the issues facing the U.S. economy and the Fed are shifting. Instead of worrying about how to revive the economy, the Fed is more and more concerned with keeping the economic expansion from moving too fast.

The Fed is taking its foot off the accelerator, or perhaps tapping the brakes; it is not by any means slamming on the brakes.

Some economists have questioned whether the brakes are needed at all at this point. Former Fed Chairwoman Janet Yellen discussed the idea of allowing the economy to “run hot” for a while. She suggested that the Fed could let unemployment get somewhat lower than it usually would.

In years past, the Fed has vigorously raised interest rates when unemployment gets below the rate at which it thinks inflation will start to accelerate. Yellen’s point is that inflation just has not been accelerating much at all, nor have wages grown very rapidly.

It might take a longer period of low unemployment to draw workers who have given up looking for jobs back into the labor market and to get the labor market to a healthy, full-employment situation.

This idea has received a degree of support from liberal economists, such as Larry Summers and Jared Bernstein. It would probably suit the Trump administration as well. However, traditional Fed thinking is very averse to allowing inflationary pressures to build up.

Bitter experience from the 1970s has stamped the idea that the Fed cannot let the inflationary genie out of the bottle into the minds of Fed officials.

While apparently sharing this concern, Chairman Powell made clear that he does not see a sharp upturn in inflation as an imminent threat. Fed officials have repeatedly stated that they still see the Fed’s current monetary policy as stimulating the economy.

The small increases in the federal funds rate should therefore be seen more as taking away the last remnants of stimulus rather than substantially holding back the economy.

Will the Fed’s next press conference be any more exciting? While Chairman Powell will probably do his best to keep it cool, the economy may not cooperate. Don’t change the channel quite yet.

Evan Kraft specializes in the economics of transition, monetary policy and banking issues. He served as director of the Research Department and adviser to the governor of the Croatian National Bank.