February 10, 2019


The Federal Reserve's Strange Case of Dr. Janet and Chairman Jay (Jeanna Smialek, February 8, 2019, Bloomberg)
Federal Reserve Chairman Jerome Powell has just finished his first year on the job--marking the fifth year of what could be called the Yellen-Powell Fed. Together with predecessor Janet Yellen, Powell has presided over the slowest rate-hiking cycle the U.S. has ever seen. Their patience might just deliver that most elusive of goals of central bankers: bringing a hot economy into a "soft landing," tamping down nascent inflation while avoiding a recession.

Inheriting a Fed that still had key interest rates near zero, Yellen began to raise them when economic data was strengthening--then paused and pledged restraint at the first sign of trouble. Powell has largely followed her lead. So far, so good. Inflation is hovering at about the Fed's 2 percent goal, and 13 million Americans have joined the job market since Yellen took office in February 2014. The central bank has coaxed interest rates up to between 2.25 percent and 2.5 percent. And it's managed to shrink the massive balance sheet of bonds it built up after the financial crisis without sending markets into a tailspin. [...]

July will crown this U.S. economic expansion as the longest on record. If growth stays slow but positive, employees trickle back into jobs, and inflation remains contained, this could be the sort of cycle policymakers dream about. "There is a path to a soft landing, but it is a very narrow one," says Seth Carpenter, chief U.S. economist at UBS Securities and a former senior monetary affairs official at the Fed. "The recent change in tone increases the chances, because it is far better to hike too little, then have to do more later." The Fed will accomplish a rare feat if it stabilizes growth without major trouble. The central bank has stuck the landing exactly once in its 105 year history, in 1994 and 1995, under then-Chairman Alan Greenspan.

What's most impressive about the economy that W/Bernanke and the UR/Yellen handed to Donald is that it has been able to withstand the tariffs (taxes/regulations) and other attacks on free trade and the free movement of peoples so far.  If Donald cared about re-election more than he hates the other, he'd drop all the Nativism and let the economy boom its way through the next few years too. 

Posted by at February 10, 2019 8:00 AM