The maturation of Jay Powell

If you just judge Jay Powell by Trump’s tweets, you are excused for concluding that Powell is the worst Fed chair in modern history.

Even if you asked the Fed watchers and commentariat for their opinion of Mr. Powell, you would probably get the same assessment. The fact that he has flubbed all his post-meeting press conferences has certainly not helped. Even with his background as a lawyer, which we can all assume would enable him to employ vague language like the Maestro, his performance was worse than his predecessors, who came from academia. How could anyone have anything but a negative or confused view of Powell’s “midcycle adjustment” statement?

But all of that is changing, I think.

On September 18, the Fed cut its key policy rates by 25 basis points, which was an expected and relatively benign outcome. Two dissenters didn’t want any cut, but we knew about their views from the last meeting. James Bullard, who wants to be the next Fed Chair, favored a 50-basis point cut, but that was not even in the cards. It was a positioning statement from him more than anything else.

Before anyone could plan a post party to celebrate, there was a spoiler to consider–the dot plots. Five members of the Federal Open Market Committee (FOMC) and regional Federal Reserve Banks still wanted higher rates by year-end, a remarkable revelation given that the next day after the rate-cut announcement the OECD reduced its global growth forecast to the lowest level seen in a decade. Wow. Thankfully, five others wanted no change by year-end, and seven dovish members wanted another rate cut.

But the game-saving play really came in the press conference, and it clearly shows that Jay Powell is maturing in the job. Both in terms of getting things done–the pivot in 2018 and the two subsequent Fed cuts in 2019–and not flubbing the press conference.

If you play back the press conference, it is remarkable that Powell didn’t give anything away and thus preserved the operating flexibility of the Fed, something neither he nor previous Fed Chairs Janet Yellen and Ben Bernanke for that matter, were able to do.

The market, despite first interpreting this rate cut as a hawkish monetary easing, reconciled itself to waiting and watching. In other words, Powell effectively bought himself and the Fed some time. Despite the ingrained marked expectations, the path to the Fed moves is not predetermined, for the first time in a while, and the path remains data dependent. The idea that the data are likely to remain soft for some time is important but somewhat irrelevant for now. To both satisfy they hawks on the committee on the committee and avoid getting the market in a tizzy is exactly what he needed to do. And he did that very well. To top it all off, he dangled the prospect of restarting quantitative easing (QE)–a brilliant move in my opinion.

A few more performances like this and we will stop missing his illustrious predecessors.

The bottom line is that the Fed cut rates and will very likely cut them further, dot plots notwithstanding. In the end, Powell refrained from being his own worst enemy.

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