Powell Has Already Hinted at Where He Stands on ‘Neutral’
When inflation is too high, policymakers move rates above neutral to rein it in; when employment is too low, they bring rates below neutral to stimulate the economy and foment job creation.
It’s a central concept in monetary policy, but no one ever knows exactly where neutral is in real time.
That brings us to this year’s Kansas City Fed symposium in Jackson Hole, Wyoming, which is appropriately dubbed “Structural Shifts in the Global Economy.”
Powell is likely to take the “wait one more meeting” approach and see how far current disinflation trends run.
Powell has already revealed a lot about his views on r-star — starting with his debut lecture in Jackson Hole five years ago.
Here are a couple takeaways from Powell’s early Jackson Hole speeches that hint at where he stands on the equilibrium real rate of interest.
In Powell’s first Jackson Hole speech, “Monetary Policy in a Changing Economy,” he paid homage to former Fed Chair Alan Greenspan and his policymaking during the 1990s “new economy” period.
In his attempt to focus on the task at hand, Powell turned again to the stars — and his view about their inherent uncertainty — to gently push back against the demand for impulsive action in his 2019 speech, “Challenges for Monetary Policy.”
If inflation keeps converging on the Fed’s target — however sluggishly — he can afford to wait another meeting yet. And then one more.
Jonathan Levin Bloomberg 24 August 2023
In his first Jackson Hole address five years ago, Powell warned against fine-tuning interest rates based on unobservable estimates such as neutral, which he compared with navigating by the celestial stars.
Others think Powell could nod to that uncertainty by hinting at “growing evidence that neutral rates may be higher than previously assumed,”
Nick Timiraos Wall Street Journal 24 August 2023
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