Fed Chairman’s Subtle Changes Make a Quick Imprint

Jerome Powell has been chairman of the Federal Reserve for more than four months. But with his news conference Wednesday he finally took charge.

Powell signaled no dramatic about-face from the policies pursued under his predecessor; the Fed’s policy committee raised its main target for interest rates, as had been widely expected. By making subtle changes in custom, though, he put a new imprint on the institution, with potentially big implications for monetary policy and the economy.

He began his session with the news media with what he called a “plain-English” description of what the Fed had done and why, a contrast with the practice of his predecessors Janet Yellen and Ben Bernanke, both economists who prefaced their appearances with long prepared statements loaded with monetary policy jargon.

“The economy is doing very well,” Powell said, standing before reporters (Yellen and Bernanke both chose to sit at a desk for their post-meeting news conferences). “Most people who want to find jobs are finding them, and unemployment and inflation are low.”

Powell announced that he would begin holding a news conference after every Fed policy meeting starting in January; currently such a session is held after only four of the eight annual meetings.

Although he said this was not meant to signal any change in the direction of policy, it opens up more flexibility for the Fed as it sets interest rate policies. Financial markets currently expect interest rate increases only in meetings with a news conference; now the Fed will have the option of making more than four policy moves a year without unnecessarily surprising markets.

And the Federal Open Market Committee, which Powell leads, changed its statement describing its rate increase in a way that removed a mainstay of its monetary policy of recent years. Dating to the Bernanke era, the Fed has used “forward guidance” to signal the future direction of interest rates.

For example, at the March policy meeting, the committee said that its interest rate target “is likely to remain, for some time, below levels that are expected to prevail in the longer run.” That language was excised from the new policy statement, which said only that the “timing and size” of future rate increases will be determined by many factors.

This change reflects a judgment that the economy is in much sounder shape than it was a few years ago, when its policy rate was stuck near zero and this forward guidance was a tool the Fed used to try to guide interest rates. Powell emphasized that thisdropping of forward guidance wasn’t a signal of a change in the direction of policy, but rather a reflection of changing times.

Taken together, Powell signaled a Fed that is broadly confident in the state of the economy, and happy to say so for the audience far beyond the bond traders who hang on the Fed chairman’s every word.

But he also sought to change some of the practices of the central banks in ways that will maintain greater flexibility in 2019 and beyond. By doubling the number of news conferences and removing the forward guidance on rates, Powell will find it easier to adjust on the fly, such as by accelerating the pace of rate increases, if the economy evolves differently than he now forecasts.

A risk with these moves is that the Fed — which has carefully maintained its image as a bastion of cautious, apolitical policymaking in Washington — might become too quick to make abrupt changes or adopt a tinge of showmanship.

The central bank usually changes its practices glacially, aiming to be boring and predictable. The June meeting may have contained no meaningful change in the direction of policy. But it signaled that Powell is putting his stamp on the institution and is trying to ensure that the Fed is poised to react decisively and with clear public communication, whatever the economic future may hold.