'Humble and Nimble' Fed Chair Is Indecisive

The main source of the stock market's volatility since the start of this year has been the Fed. Jerome Powell, the Fed chair, contributed to the uncertainty about monetary policy weighing on the market last week on Wednesday, January 26. In his press conference that day following the latest meeting of the FOMC, Powell mentioned the word "decision" 15 times, with 14 of them in the context of "no decision has been made." The only decision that was made was to reiterate the decision at the December 14-15 meeting of the FOMC to stop buying securities after March. The following are the relevant excerpts:

(1) "To provide greater clarity about our approach for reducing the size of the Federal Reserve’s balance sheet, today the Committee issued a set of principles that will provide a foundation for our future decisions. These high-level principles clarify that the federal funds rate is our primary means of adjusting monetary policy and that reducing our balance sheet will occur after the process of raising interest rates has begun."

(2) "Our decisions to reduce our balance sheet will be guided by our maximum employment and price stability goals. In that regard, we will be prepared to adjust any of the details of our approach to balance sheet management in light of economic and financial developments."

(3) "The Committee has not made decisions regarding the specific timing, pace, or other details of shrinking the balance sheet, and we will discuss these matters in upcoming meetings and provide additional information at the appropriate time."

(4) "And so, at this time, we haven't made any decisions about the path of policy. And I stress again that we'll be humble and nimble."

(5) "The labor market is far stronger. Inflation is running well above our 2 percent target, much higher than it was at that time. And these differences are likely to have important implications for the appropriate pace of policy adjustments. Beyond that, we haven't made any decisions."

(6) "So we had a discussion, as you know, at the last meeting, an introductory discussion of the balance sheet and teeing up of the issues. At this meeting, we've gone through and carefully put together a set of principles at a high-level. And those are meant to guide the actual decisions we'll make about the pace and about all of the questions that you're asking. And I expect that this process will be something that we spent time on in coming meetings. I can't tell you how many; I can't say how long it will take."?

(7 & 8) "Surveys show that market participants are expecting a balance sheet runoff to begin, you know, at the appropriate time sometime later this year perhaps. We haven't made that decision yet. So, we feel like the communications we have with market participants and with the general public are working and that financial conditions are reflecting in advance the decisions that we make."

(9, 10 & 11) "Well, you're right. We haven't got -- we haven't gotten to that point. We haven't made a decision yet, and we'll make that decision at the March meeting. We'll make a decision whether to raise the federal funds rate."

(12) "And we'll -- you know, we'll start the process of allowing runoff and shrinking the balance sheet at what we find to be the appropriate time. It's -- I wish I could say more. But,?honestly, we haven't made those decisions."

(13) "So, as I mentioned, we have not made these decisions. We really haven't. And what I can tell you now, though, is that we fully appreciate that this is a different situation."

(14) "And so inflation right away, right away forces people like that to make very difficult decisions."

(15) "And that -- that's really where we are. In terms of your question about the size of rate increases, we haven't faced those decisions."

Odds are that the March 15-16 meeting of the FOMC will be much more decisive. My message to the Committee: "The labor market is strong. Inflation is a problem. Can we just get on with what needs to be done, please?"

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* Here is the link to Powell's presser: https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20220126.pdf

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