Fed’s chief jawboner to let data do the talking

FOR much of the past year, Federal Reserve Chair Jerome Powell has used his marquee speeches to jawbone markets lower to put downward pressure on inflation, making his words the most powerful force in markets. On Wednesday (Nov 30), however, he humbly took a step back and made his most explicit commitment yet to let the data do most of the talking.

Until recently, of course, Powell and his colleagues on the Fed’s rate-setting committee have been singularly focused on getting financial conditions tighter – and fast. At his policy speech in August in Jackson Hole, Wyoming, he methodically neutered every dovish narrative circulating on Wall Street at the time. Now, though, policymakers are starting to slow the pace of tightening, including the sort that happens through expectation management. That’s the right approach as the Fed tries to feel its way around in the dark for a level of financial and economic conditions that will bring inflation back under control, ideally without walloping the labour market.

Policymakers might be close to that level, but frankly, they might not. They’re facing one of the most perplexing economic environments in decades, and their forecasts have repeatedly been wrong about inflation. Even the hard data itself has delivered a series of head fakes, and Powell has settled on fighting high and volatile prices until the evidence delivers incontrovertible evidence that they’ve been slayed.