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The Fed’s Powell Misses an Opportunity at Jackson Hole

Jerome Powell left us hanging.

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By
Peter Eavis
, New York Times

Jerome Powell left us hanging.

The chairman of the Federal Reserve, in a much-anticipated speech Friday, spent most of his time explaining the challenges facing the central bank as it conducts its monetary policy. Powell emphasized the difficulties of understanding America’s changing economy and argued for a flexible approach.

But in concentrating on why macroeconomic forecasting is hard, Powell may have passed up a high-profile opportunity to drill down on some of the forces that could have a real bearing on the economy in the coming months — and that have bedeviled Fed policymakers in the past. These include a stock market that hit an all-time high on Friday.

Powell was speaking at an annual gathering of central bankers at Jackson Hole in Wyoming. The venue has served in the past as an occasion for Fed chairs to go deep on specific challenges central banks face. Janet Yellen in her first year as Fed chairwoman four years ago spoke in detail about labor markets — a crucial area for the Fed given its dual mandate of stable prices and full employment.

Now might have been a good time to hear more from Powell on financial markets. Not only has the stock market been setting records, there are signs it is becoming overvalued. At the same time, risks are piling up in large swaths of the debt markets. Witness the large increase in the amount of debt issued at the lowest investment-grade credit rating.

Enticingly, Powell did refer in passing to the challenge posed by frothy financial markets. When inflation is low, it can make sense to keep monetary policy relatively loose, but doing so can drive stock and bond prices higher. “Whatever the cause, in the run-up to the past two recessions, destabilizing excesses appeared mainly in financial markets rather than in inflation,” Powell said.

He could have added a lot more. What is the Fed’s latest thinking on stock valuations? What might happen to the real economy if stocks tumble in the next few months? Is the Fed concerned about relaxed lending conditions in parts of the debt markets, like leveraged loans?

Powell probably isn’t worried about the markets. In June, he said: “Today I see U.S. financial stability vulnerabilities as moderate and broadly in line with their long-run averages. While some asset prices are high by historical standards, I do not see broad signs of excessive borrowing or leverage.”

His view may be correct, but Powell could explain how he arrived at that conclusion. And if stocks keep going up, and debt markets become more speculative, the Fed arguably owes it to the public to be more forthcoming.

No one wants dogma from central bankers, but Hamlet-like equivocation is of limited use. Real-world specifics are always appreciated from those steering the economy. Powell still has plenty of time to provide fresh thoughts on the economy the public lives and works in.

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