So the transcript of today’s Fed chair powwow is a good read. Pulled out what I thought were key parts. First up Powell’s opening remarks: All about risk management, no preset path, muted inflation allows for patience, if you don’t believe us see how we changed course in 2016. 
Irwin: are the markets saying you made a policy mistake?
Powell: markets concerned about downside risks. “And I’ll just say that we’re listening carefully to that”
Self evident they would be listening, but straightforward attempt to soothe market participants
Powell: markets concerned about downside risks. “And I’ll just say that we’re listening carefully to that”
Self evident they would be listening, but straightforward attempt to soothe market participants
Ok, let’s talk balance sheet:
Balance sheet not supposed to be active policy tool, but...
“the first policy normalization plans that I was involved in in 2014 we said that we would be prepared to adjust our normalization plans as appropriate to achieve our goals.”
Balance sheet not supposed to be active policy tool, but...
“the first policy normalization plans that I was involved in in 2014 we said that we would be prepared to adjust our normalization plans as appropriate to achieve our goals.”
“if we ever came to conclusion that any aspect of our normalization plans was interfering with achievement of our statutory goals we wouldn’t hesitate to change it, that would include the balance sheet.”
“hearing from a lot of groups about role normalization may be playing”
“hearing from a lot of groups about role normalization may be playing”
Third time for emphasis:
“but I’ll say again, if we reached a different conclusion we wouldn’t hesitate to make a change. If we came to the view that the balance sheet normalization plan... was part of the problem, we wouldn’t hesitate to make a change”
“but I’ll say again, if we reached a different conclusion we wouldn’t hesitate to make a change. If we came to the view that the balance sheet normalization plan... was part of the problem, we wouldn’t hesitate to make a change”
You can claim all you want that he said the same thing at the presser, but it’s pretty clear he had a specific goal in mind when discussing the balance sheet today, and was prepared to beat that message to a bloody pulp.
Yellen: “So I believe there is a linkage between slack in the labor market and product markets and inflation but the strength is not very great.”
Bernanke says there was some financial ebullience in late 2017 and early 2018, but that’s gone. We talked at the time about the Fed probably being actually relieved by the Feb Vixplosion that dampened risk taking.
Bernanke: Dealing with the ZLB now a much greater risk given low level of nominal rates. We used forward guidance and QE. Both were constructive. No hyperinflation or anything the critics worried about. And we’ve learned about how to communicate and coordinate those policies.
Powell: “I raised concerns when I first got to the Fed, and I said some time ago that the concerns people raised - and it was appropriate to raise them - didn’t really bear fruit. We didn’t see high inflation. We didn’t see asset bubbles. We didn’t see those kind of things.”
Bernanke: taper tantrum was an example where we could’ve communicated better.
“One of the roles of asset purchases is to offer a signal about where future rate policy is going to be”
“One of the roles of asset purchases is to offer a signal about where future rate policy is going to be”
Powell: the taper tantrum scared the shot out of us and “I think the takeaway was that the market can be very sensitive to news about the balance sheet, the pace of normalization, anything like that.”
You think he’s trying to send a message??
You think he’s trying to send a message??
Great question on the two different linkages, slack to wages and wages to inflation
Powell: “both of those links have weakened significantly... wages going up is not necessarily inflationary”
Powell: “both of those links have weakened significantly... wages going up is not necessarily inflationary”
Here’s the link. Again great job by @Neil_Irwin. This will be a fascinating transcript to look back at in a few years. wsj.com/articles/trans…
