Imagine that you are crossing the ocean in a ship. The captain said he hoped to reach New York, but he had no great confidence as to whether the ship would reach that destination. Instead, he told you exactly how he planned to adjust the steering wheel in the next 3 hours. how are you feeling
Personally, I would rather have the captain express a high level of confidence in the destination, but also demonstrate a willingness to change the steering wheel setting as necessary to offset wind and waves.
Over the past year, I have often criticized the Fed. The so-called “flexible average inflation target” has created more confusion than clarity. The exact meaning of the 2% inflation target is now unclear. In 2021, the Fed provided forward guidance on interest rates and QE, leading to a policy that was too expansionary for the state of the economy. They should have provided more clarity about where they want the price level to be in the future, and been much more willing to make interest rate targets and QE “data dependent”.
Today, I want to commend Jay Powell for his comments at yesterday’s press conference. He emphasized in his statement that the Fed will do whatever it takes to get inflation back to 2%. (Of course I would still prefer NGDP level targets.) More importantly, he suggests that future interest rate movements will be data dependent. I suspect this is why the markets responded positively to the press conference.
The media often focuses on whether the Fed’s statement is hokey or bullshit. I focus more on whether they are effective in achieving the Fed’s goals and reducing policy uncertainty. By that standard, yesterday was a decent move.
Rest assured. And no, we didn’t have a recession in the first six months of 2022.