Is Jay Powell lucky or good?
Policy, happenstance and the soft landing
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US INFLATION is close to target, the unemployment rate is 4.3 per cent, and the economy is growing above its trend rate. Bad news can always appear – the August employment report is on Friday (Sep 6) – but it looks like Jerome (Jay) Powell’s Federal Reserve has managed the economy about as well as one can imagine.
After 20 years of thinking about markets, however, I see the influence of luck everywhere. It is fair to wonder if Powell, rather than being a historically brilliant Fed chair, has just had the good fortune to be in charge when good things happened. Last week, my colleague Martin Sandbu articulated this possibility very neatly.
In his Jackson Hole speech, Powell attributed the post-pandemic inflation to distortions of both supply and demand, and put the subsequent disinflation down to the dissipation of those shocks, monetary policy moderating demand, and well-anchored inflation expectations. Anchored expectations were particularly important, he said, and the Fed’s vigilance in both current and past cycles has contributed to that.
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