Jerome Powell turned in a passable performance at January’s post-FOMC press conference, which, we’ve learned, is about the best anybody can hope for from Jay.
It’s not that I dislike Powell. Indeed, you’d have a difficult time finding anyone who has defended him more vociferously than I have against Donald Trump’s incessant badgering and overt efforts to commandeer US monetary policy in the fashion of Erdogan’s Turkey.
The problem is that Powell is a non-economist who was charged first with managing an exit from a historic experiment based purely on economic theory, and then with extending that same experiment once he botched the exit.
January FOMC Review: Fed Commits To Repos Through April, Keeps Main Rate On Hold, Raises IOER
Powell is a successful fellow, with a sterling CV and lots of experience, but, ultimately, he lacks the training you need in order to traffic in the kind of indecipherable economic doublespeak that paradoxically calms markets.
More colloquially, Powell is not good at “baffling them with bullsh–t”.
And that’s a problem. Because in a world where nothing makes much sense (e.g., borrowing costs for some corporations are negative in Europe), being able to “baffle them with bullsh–t” is a literal job requirement for any central banker. In fact, “expert bullsh–tter” is arguably the most important skillset for monetary policymakers at a time when common sense suggests that everything is woefully off-kilter.
Previously, I’ve had trouble conveying what is so wrong with Powell’s “plain English” approach. While I was swiftly proven correct in my original contention (first espoused in these pages in early 2018) that risk assets would sell off virtually every time he opened his mouth, I struggled to explain why.
Now, after two long years, I think I’ve finally captured it. The problem is that “plain English” is the opposite of “total bullsh–t”. And “expert bullsh–tter” is what defines a good central banker post-crisis.
(You’re welcome, to those of you who are now chuckling.)
As far as the details from Wednesday’s presser, there aren’t many – details, that is. Powell navigated a predictable set of questions reasonably well, with no serious stumbles.
Perhaps the most notable moment came when he (possibly by accident) announced a taper to T-bill purchases. “Reserves will durably reach ample levels in the second quarter”, he mused, on the way to noting that the Fed will “eventually slow the pace of bill purchases”. That’s self-evident assuming you mean purchases above and beyond what’s necessary for “organic” balance sheet growth. Eventually, reserves will return to pre-September levels and from there, the size of the balance sheet will presumably be determined by organic factors.
Still, he probably should have just said something totally nebulous rather than saying, explicitly, when reserves will be “ample” again (people can do the math themselves, after all). He noted that the Fed wants $1.5 trillion to be the lower bound for reserves, which isn’t really “news”, per se.
This was the day in US equity futures:
To his credit, Powell was pretty adept at addressing a tweak to the statement language around inflation, emphasizing that the Fed’s overarching priority is to ensure it doesn’t remain uncomfortably low. “[We’re] not comfortable with inflation running persistently below our 2% objective”, he said, which prompted traders to add to rate cut bets. Around 36bps of easing is priced for this year.
“Our base case is for a steady target rate for now”, US Bank Wealth Management’s head of fixed-income research, Bill Merz, said. “But his comments confirm our view that a cut is still more likely than a hike”.
10-year yields fell all the way to 1.58% in and around the “clarification” of the minor tweak to the inflation language.
Asked about the Wuhan virus, Jay did his best. It’s probably going to disrupt activity in China, he said, and added that there’s a lot of uncertainty about how far it will spread.
Again, it’s silly that anyone expects Powell to have any answers about a mysterious respiratory infection that originated in wild animals sold at a wet market in China. But I guess that speaks to what I said above. Janet Yellen would have had some kind of response that convinced market participants of the patently absurd notion that despite not having any training whatsoever in infectious diseases, somehow, the Fed would shield the world from the fallout should things get really dicey. Of course, whatever hypothetical answer she would have given would be mostly bullsh–t, but… well, see the discussion above.
On the standing repo facility discussion, Powell not surprisingly said no decisions have been made. He insisted there’s no urgency on it, and I suppose he’s right. He said policymakers would return to the issue “fairly soon”. (Analysts will “return to the issue fairly soon” too, where “fairly soon” means strategists are busy right now pounding out FOMC postmortems, given that the only real notables from today were for the front-end.)
Finally, as to financial asset prices more broadly, they’re “somewhat elevated”, but “not extreme”, Powell said.
At least he knows what to say when asked if the Fed is in the bubble-blowing business.
“somewhat elevated”, but “not extreme”, Powell said.
When was the last time that a fed chair admitted that assets prices were “extreme”?
Something like, let’s see, well, hmmm, …. never?
I pretty clearly remember the words “irrational exuberance” from Greenspan
“Perhaps the most notable moment came when he (possibly by accident) announced a taper to T-bill purchases.”
Obviously Powell is skilled enough to persuade even veteran market observers that the Fed is following a plan. The above quote is not a fact, it’s Powell proving he is a master of bullsh**t!
I have often joked that my most successful trades have come from always doing the opposite of what Goldman Sachs recommends to the muppets. Powell now stands shoulder to shoulder with Goldman in that regard.
It’s now clear that the Fed will never raise interest rates again, and that repo QE is now a permanent function of the Fed. The can will be kicked down the road to the next presidential election.
So, I think Powell is pretty damn impressive in his bullsh**t!
Actually I like Powell … He would be inclined to be a straight shooter but for everyone parsing each word and complaining about each answer he gives…… Should just tell the detractors he dropped his crystal ball on the way to work and it is shattered beyond repair.. That puts him on a par with the financial media….and about everyone else…
I like Powell, too, and think it’s a shame a key part of his job is too avoid saying anything that would cause Wall Street to throw a fit. Wall Street is entirely too full of itself and long ago lost the trust and confidence of a majority of Americans. Come the revolution, there will will be heads on pikes, and they won’t just belong to Republican senators.