An artificial intelligence would not find much difference between Powell’s speech today and his July press conference. For instance, look at these two paragraphs:
We are highly attentive to inflation risks and determined to take the measures necessary to return inflation to our 2 percent longer-run goal. This process is likely to involve a period of below trend economic growth and some softening in labor market conditions. But such outcomes are likely necessary to restore price stability and to set the stage for achieving maximum employment and stable prices over the longer run.
Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.
Pretty much the same. The cost of reducing inflation is below trend growth and a soft labor market. All Powell did is add some “sustained pain”. Ouch.
The forward guidance is also pretty similar, at least if you are an AI. This time I’ll do today’s speech first:
In current circumstances, with inflation running far above 2 percent and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause.
July’s increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. We are now about halfway through the intermeeting period. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.
Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy. Committee participants’ most recent individual projections from the June SEP showed the median federal funds rate running slightly below 4 percent through the end of 2023. Participants will update their projections at the September meeting.
Lots of emphasis on the likelihood that rates need to stay high for “some time” to avoid “prematurely loosening” policy.
In July, he made similar comments, but all the emphasis was on policy being data dependent:
Over coming months, we will be looking for compelling evidence that inflation is moving down, consistent with inflation returning to 2 percent. We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate; the pace of those increases will continue to depend on the incoming data and the evolving outlook for the economy. Today’s increase is the—in the target range is the second 75 basis point increase in as many meetings. While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then. We will continue to make our decisions meeting by meeting and communicating—and communicate our thinking as clearly as possible. As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation. Our overarching focus is using our tools to bring demand into better balance with supply in order to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored.
Making appropriate monetary policy in this uncertain environment requires a recognition that the economy often involves—evolves in unexpected ways. Inflation has obviously surprised to the upside over the past year, and further surprises could be in store. We therefore will need to be nimble in responding to incoming data and the evolving outlook.
. . . depend . . . meeting by meeting . . . anticipate . . . evolves in unexpected ways . . . nimble . . .
Even the term “While” at the beginning of a sentence subtly changes the emphasis of the conditionality.
If you tell me, “Oh come on, he’s saying almost the exact same thing”, then technically you are correct. But I’ll assume you are an AI, not a human being.
Powell got it right in July—make policy data dependent. Convince the markets you are neither a hawk nor a dove. Today, he’s making higher interest rates for an extended period a bit less data dependent. He is out in Wyoming, and perhaps he decided he needed to play the tough cowboy. I don’t know about the labor market, but the stock market certainly felt some “sustained pain”.
We need higher rates (75 bp) and more conditionality. In other words, it’s not so much easier money or tighter money—we need a more nimble monetary policy. We need less tail risk.
PS. How about holding next year’s meeting in a touchy-feely place like Marin County. Each year they can alternate. Instead of political business cycles we’ll have psychiatric business cycles.