Jan 29, 2020

US Economy: Ordinary or ‘Enemy’? How Jay Powell Is Positioning the Fed in a Fraught Era

9-11 minutes - Source: NYT

WASHINGTON — Jerome H. Powell has spent much of his life toiling quietly behind the scenes, first as an investment banker and later as a governor at the Federal Reserve. Even as the central bank’s chair, and arguably the global economy’s most important figure, he has maintained a low-key image.
He’s an avid cyclist who eats well (Greek yogurt with granola and blueberries for breakfast), wakes up early (5:15 a.m.), and unwinds with spy novels (John le Carré is one favorite). He was a prop in his dog, Pippa’s, Mick Jagger Halloween costume. He has been known to fret over the national debt. Everything about him, from the simple language he uses at news conferences to his demeanor on Capitol Hill, conveys that he is relatable, ordinary and decidedly undramatic.
Yet he plays a leading role in the soap opera that is President Trump’s Washington. A scroll through Mr. Trump’s Twitter feed paints Mr. Powell as an out-of-touch policymaker bent on single-handedly tanking America’s economy by keeping interest rates too high.
The president blatantly cast him as a villain last August — just moments after the Fed chair delivered a keynote speech at the central bank’s annual meeting in Jackson, Wyo. — comparing Mr. Powell to Chinese leader Xi Jinping.
“We have a very strong dollar and a very weak Fed,” Mr. Trump wrote in a tweet. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
The broadside stunned attendees, several later said. But Mr. Powell, Mr. Trump’s own pick for the job, responded to the affront as he has throughout 18 months of nonstop White House criticism: The Fed chair said nothing.
That quiet approach is part of a deeper strategy by Mr. Powell, who is trying to convince America that the Fed is a collection of nonpartisan public servants focused on serving the American people — not a temple of elites wielding unchecked power.
It has been tough to get that message across. Central bankers raised rates four times in 2018, Mr. Powell’s first year in charge, to the dismay of the White House and some liberal commentators, who declared that the Fed was more concerned with offsetting inflation than with fostering stronger growth and higher wages. When officials pivoted to cut rates three times in 2019 amid wavering price pressures and slowing global growth, critics said they had capitulated to markets and Mr. Trump.
In his quest to explain the Fed’s often-complex actions, Mr. Powell has made a habit of speaking in plain English. To underline the Fed’s independence, he ignores presidential heckling, even when it’s personal: Mr. Trump has referred to Fed policymakers as “boneheads,” and has likened Mr. Powell himself to “a golfer who can’t putt.” (Mr. Powell does golf, though the Fed would not provide his handicap.)
And to shore up support, Mr. Powell visits Capitol Hill frequently, holding more than 260 meetings with members of Congress since taking over as chair in February 2018. Mr. Powell listens carefully to lawmaker concerns and explains clearly what the Fed is doing, said Senator Patrick J. Toomey, a Pennsylvania Republican, adding that he has a “healthy humility” about the Fed and its powers.
That approach could help insulate the Fed. While board members are nominated by the White House, the central bank ultimately answers to Congress.
“He can talk about technical things, and bring them down to be simple,” said Senator Richard Shelby, an Alabama Republican who sits on the Banking Committee. Mr. Shelby said Mr. Powell’s outreach to Congress was “smart,” noting that “Alan Greenspan, when he was chairman, he did that.”
Mr. Powell, who is not an economist, is hardly seen as a master conductor. Market participants often critique the Fed chair’s approach as overly lax.
He casually declared in late 2018 that the Fed was “a long way” from the interest rate setting above which monetary policy reins in the economy. Investors panicked, taking it as a sign that the central bank would raise rates too much. Stocks plummeted.
It was one of several missteps that have caused some Wall Street investors to paint the chair as inexpert and even unprepared. Commentators have called his communication style everything from “pathetic” to “not cutting it.” Others have joked that Richard Clarida, the Fed’s vice chair, is often scheduled to speak shortly after Mr. Powell in a pre-emptive effort to clean up the boss’s mess.
People who have worked with him say Mr. Powell’s unscripted approach is intentional, the product of thorough research and extensive planning.
For post-meeting news conferences, he prepares much as his predecessor Janet L. Yellen did. Mr. Powell and a dozen or more Fed staffers huddle in a conference room to review dozens of possible questions and suggested answers. He painstakingly puts each response into his own words.
Like Ms. Yellen, he carries a thick black binder full of prepared answers to the events.
But where Ms. Yellen, an economist, offered dissertation-like explanations that analysts loved to parse, Mr. Powell delivers clipped, conversational replies meant to get his message across to Main Street, not just Wall Street.
“Because monetary policy affects everyone, I want to start with a plain-English summary of how the economy is doing, what my colleagues and I at the Federal Reserve are trying to do, and why,” he said at the start of one of his early news conferences, in June 2018.
There are limits to that approach. Even if Mr. Powell does not see investors as his sole constituency, market gyrations can make credit harder to come by, slowing the economy. Mr. Powell’s answers have become increasingly scripted and repetitive in concession to that reality.
Sometimes, “it behooves you to be more precise, a little more rigid in your language,” said Julia Coronado, founder of the research firm MacroPolicy Perspectives.
Yet Mr. Powell is also under pressure to make it clear that the Fed is focused on working Americans.
On Tuesday, Mr. Trump suggested yet again that the central bank was putting America at a competitive disadvantage. Those ongoing attacks threaten to chip away at the Fed’s public image at a particularly bad moment, as the central bank sits on the brink of a few hard-to-explain decisions.
Interest rates have fallen to historic lows, leaving policymakers with limited room to control the economy by cutting borrowing costs. The problem demands pre-emptive solutions, which officials are expected to announce in mid-2020. For example, the Fed could formally embrace periods of slightly higher inflation.
But inflation remains a dirty word in much of America, making that tweak a tough sell.
In a move that could help improve the optics of any change, Mr. Powell and his colleagues have involved ordinary people in the conversation.
As central bankers and academic economists have gathered to consider the future, they have also met with job placement professionals, community organizers and single parents in board rooms, food pantries and classrooms to talk about how monetary policy affects their lives.
In November, Mr. Powell spent time in East Hartford, Conn., where factories still buzz but sagging houses and defunct stores dot the side streets. Mr. Powell spoke with local leaders gathered in an elementary school gymnasium, took a bus tour of the area and scribbled notes as community members talked about a labor market development initiative.
“I felt like he was genuinely interested,” said Amy Peltier, who directs the program.
Not everyone buys the message. Like Mr. Trump, Senator Bernie Sanders, who is seeking the Democratic nomination for president, has questioned the Fed’s decision to raise interest rates nine times between 2015 and 2018.
Officials made those moves, all of which Mr. Powell voted for, because they expected low unemployment to begin to spur higher inflation. It hasn’t, even after they cut rates three times in 2019 in response to trade uncertainty and a weakening outlook.
Mr. Powell has never said the Fed made a mistake. But he led on last year's pivot — hinting that the Fed might consider rates cuts in a June speech. He worked to build consensus around the three cuts, even as some voting members dissented against reducing rates at a time when unemployment hovered near a 50-year low.
“He’s not wedded to some model he was taught 40 years ago in graduate school,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said in an interview last month. “I think he’s probably aided by the fact that he doesn’t have a Ph.D. I think that has helped him to make the shift he has made over the past year.”
Mr. Powell has said he does not think the central bank should consider raising rates again unless inflation moves substantially higher and for a sustained period, a message he is expected to reiterate at the Fed’s policy meeting Wednesday. He is not expected to signal any imminent rate cuts, either, as the economy chugs along.
While that could draw the White House’s ire, current and former Fed officials have commended Mr. Powell’s performance.
“He has not allowed himself to be dragged into a tiff with the president,” Ms. Yellen said. “He’s doing extremely well.”

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