There’s what you think you said. There’s what you actually said. And perhaps most importantly for the steward of the world’s largest economy, there’s what people heard.
That’s a lesson Federal Reserve Chairman Jerome Powell is learning the hard way as he seeks to steer the economy between the twin shoals of overheating and recession while being buffeted by criticism from Wall Street to the White House.
Powell is going to be getting a lot more practice. He’ll hold a press conference after every Fed meeting from next month onward -- boosting both the opportunity to refine his message and the risk of sowing confusion.
Case in point: Powell’s unscripted comments on Oct. 3 that monetary policy was still boosting the economy and probably was “a long way from neutral” but might eventually have to turn restrictive.
While numerous Fed watchers saw the remarks as nothing new, many investors heard it as a signal that the central bank was far from finished raising interest rates. And they dumped stocks in response, helping send the S&P 500 Index to its worst performance since 2011 last month.
Jefferies LLC chief market strategist David Zervos didn’t mince words, blaming Powell’s inexperience at the helm. The sell-off was “simply the result of a novice Fed chair fumbling the communications ball,” he said in an email to clients, dismissing arguments that U.S.-China trade tensions or other factors were to blame.
Powell and his colleagues are expected to hold policy steady at a two-day meeting starting Wednesday, while leaving the door ajar to a rate increase at their final gathering of 2018. Powell’s next press conference is scheduled for Dec. 19 and he will then hold one after every gathering starting in January.
December ‘Resolve’
“Heightened financial market volatility has not altered the Fed’s resolve to hike in December,” Morgan Stanley Chief U.S. Economist Ellen Zentner and her fellow economists wrote in a Nov. 1 note.
The problem is that investors are still getting to know Powell eight months after he became chairman. Unlike predecessors Ben Bernanke and Janet Yellen, he doesn’t have a Ph.D. in economics and prides himself on his ability to translate difficult subjects into plain English. That’s undoubtedly what he was trying to do in his Oct. 3 comments to television anchor Judy Woodruff.
The result is that perhaps “a little gets lost in translation in the financial markets because people want to infer changes in the substance of what’s being said when what’s changing is just the approach or the tone,” said Stephen Stanley, chief economist of Amherst Pierpont Securities LLC.