Jerome Powell fumbled his first press conference of the year.
Financial conditions have become much easier by almost every metric over the past three months. Equities prices have soared, bond yields have dropped, and mortgage rates are down to the point that homebuilders are sounding optimistic. Financial asset prices imply that the Fed is unlikely to get the federal funds rate above five percent and very likely to cut the benchmark rate later this year.
Powell’s job at Wednesday’s press conference following the Federal Open Market Committee meeting was to deliver a message sufficiently hawkish to discourage this. Modern monetary policy works primarily by influencing financial conditions. When you want the economy to heat up, you use your tools to loosen financial conditions. When you are trying to cool things off, you use your tools to tighten financial conditions. As…
