Welcome to the great game

Last week was supposed to be the coming-out party for new Federal Reserve Chairman Jay Powell as he presided over his first FOMC meeting. The Fed—as predicted by just about everyone—raised the Federal Funds Rate 25 basis points (the effective range is now 1.50%-1.75%). Perhaps more important than the policy decision was how the new Chairman answered questions about policy and the economy going forward. Mr. Powell, who the Financial Times stated, “Showed all the deliberation of a trained lawyer,” seemed to be setting a new tone for the Fed. After 12 years of increasing clarity and guidance from Fed leaders Bernanke and Yellen, Chairman Powell seemed to be sending a message that the Fed will start returning toward the communication model of Paul Volcker and Alan Greenspan. Chairman Volcker treated reporters’ (and sometimes Congressmen’s!) questions as though they just tracked mud on his carpet. Chairman Greenspan took a different route that can be adequately summed up by this quote he gave to reporters: “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”

Chairman Powell was polite and clear but his “trying to take the middle ground” statement with regard to policy is pretty noncommittal when you consider that he is now responsible for figuring out how to unwind the extraordinary monetary policy that, along with the world’s other major central banks, has pretty much run the global economy since 2008. The middle ground may be as difficult as hitting one straight down the fairway in a hurricane. Nevertheless, I kind of like the thought of the Fed returning to the model of less transparency and guidance, as there’s just been too much of it. I believe in the old adage that the markets are ruled by greed and fear. Central banks’ decade molly coddling removed the “fear” part of that adage. Greed without fear leads to widows and orphans buying mid-stream master limited partnerships and Argentinian treasury bonds!


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