Another factor is the uncertainty Powell has mentioned in the past, but dealt with only in passing this time under the rubric of “destabilizing excesses.” These include excessive risk taking and over-extension in financial markets that, if left unaddressed, present risks to the economic outlook. In other words, the possibility that the interest rate/balance sheet policy stance that delivers on the dual mandate of employment and inflation may not necessarily be consistent with financial stability. And just like the “stars,” this uncertainty is also two-sided.
All of this indicates that, beyond September, the prospects for monetary policy could become increasingly uncertain. No matter how confident several of the regional bank presidents appeared at Jackson Hole, there is a growing set of legitimate domestic and external questions that influence what the Fed will end up doing in December, let alone next year.
I wouldn’t be hugely surprised if a rate increase in September wasn't followed by one in December. In another scenario, the Fed would carry out the September and December increases but take a longer pause in March.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco.
This column was provided by Bloomberg News.