Amid Fed-bashing, Powell aims for a more traditional monetary policy

Personal Finance

Andrew Harrer | Bloomberg | Getty Images

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Wednesday, Sept. 26, 2018.

What kind of man enjoys raising interest rates? Is Federal Reserve Bank Chairman Jerome Powell crazy? Or is something else going on?

Pressure from presidents on central bankers is nothing new, yet President Trump has taken Fed-bashing to a new level, some observers say. While the prospect of rising interest rates has clearly rattled the stock market in the last two weeks, the Fed chairman can’t be faulted for steering the central bank towards a more traditional monetary policy.

“I give the Fed and Chairman Powell high grades,” said Brian Nick, chief investment strategist for Nuveen. “The rate hikes have been judicious and they haven’t spooked the bond market.

“Powell speaks more plainly than many central bankers, and I think that helps.”

The stock market is still hanging on Powell’s every word, of course. Statements by Fed members — particularly the chairman — always provide fodder for market anxiety. The latest utterance from the Fed chairman that sent shock waves through the market was his assertion in a recent PBS interview that we are “a long way from neutral [interest rates] at this point.”

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So how long is a long way and what is “neutral” — neither too accommodative nor restrictive to the economy — in a still abnormal policy environment?

“You can go down the micromanagement rat-hole and analyze every nuance of every word that Fed members say,” said Jeffrey Rosenberg, chief fixed income strategist for BlackRock. High frequency trading on Fed-speak is known to rock the markets, usually negatively. “There’s an entire industry based on it.”

Rosenberg, too, thinks the Fed has done an admirable job shifting policy without upsetting the markets too dramatically. It has raised interest rates seven times in the last two years and begun to reduce its now $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities. Rosenberg thinks the Fed Open Market Committee’s deletion of language in its last statement about its monetary policy being accommodative was a big turning point.

“That was a major inflection point,” said Rosenberg. “The Fed has laid out a path and shifted gears in a big way.

“I think they’re doing pretty well.”

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