Ok, well it’s now clear that Jerome Powell fucked up a little bit on Tuesday. The reviews are in and he delivered a hawkish surprise although I am by no means convinced that he intended to.
Chalk it up to a rookie mistake, but this wasn’t a good idea:
This is like Winston, from Ghostbusters:
Ray, when someone asks you if you’re a God, you say YES!
Jay, when someone asks you a direct question about your dot, you be VAGUE!
But he wasn’t vague and that turned into a problem really fast as detailed in our super-fun Tuesday wrap.
Now Jay has everyone speculating on four hikes in 2018 and that’s invariably going to spook risk assets.
“The main surprise in Powell’s congressional testimony was his hawkish answer to a direct question about what might cause the FOMC to hike more than three times in 2018,” Citi writes, adding that “rather than affirming the ‘gradual’ rate hike committee consensus, Powell left the door open for upward revisions to dots.”
And you know, I don’t know if everyone heard the same thing I heard, but it kinda seemed like he was also suggesting that other committee members might be inclined to adjust their view as well. Because when you say “I don’t want to prejudge”, the only way to not do exactly that is to not say anything else. If you say “I don’t want to prejudge” and then you say something after that, well then whatever that next thing you say is amounts to prejudging. See, Jay just doesn’t have this down yet, and that’s understandable – he’s new at it.
“Based on our reading of the testimony today, what appears more likely to us is that the chair ultimately revises higher his path for appropriate monetary policy,” Barclays said on Tuesday afternoon, weighing in with their take on the clip shown above. They continue: “While he added the appropriate caveat, it seems clear that the chair’s view on the economy has strengthened [and his] comments point to a risk of a steeper policy rate path and a change in the assessment of the balance of risks from ‘roughly balanced’ to upside risks.”
Who knows, maybe Powell meant to do just what he did, but somehow I doubt it. I mean the bar was high for a hawkish surprise here, wasn’t it? So either he put in some extra effort to clear that bar or else he stumbled into it and I think the latter is far more likely than the former.
Now let’s see if he sharpens up his obfuscation skills before Thursday’s Senate hearing.