Seemingly everyone is telling Federal Reserve Chairman Jerome Powell what to do these days -- from economists to Wall Street traders to President Donald Trump.
Powell's play? Solicit more opinions.
The U.S. central bank on Tuesday started a two-day "listening" conference in Chicago, featuring speeches by top Fed officials from around the country and panel discussions with academic luminaries from top economics departments at Harvard, Berkeley, the Massachusetts Institute of Technology and the University of Chicago.
The talks will focus on whether the Fed's decades-in-the-making operating methods still work in 2019. Historically, those have mainly entailed raising U.S. interest rates to curb inflation when the economy's running hot, or cutting rates to reheat the economy when it's cool and inflation is nowhere in sight.
It's axiomatic among economists that when activity is robust and unemployment is low, inflation should start to creep up because businesses must pay higher wages to attract scarce workers and then try to pass along the extra costs to consumers in the form of higher prices.
Problem is, conventional monetary-policy theories just don't seem to apply anymore. The U.S. unemployment rate is at its lowest in a half-century, and the current economic expansion -- 10 years old this month -- is the second-longest in American history. But inflation is still running well below the Federal Reserve's target of 2%.
Theories abound to explain the discrepancy. An influx of new and previously discouraged workers into the labor market has helped to suppress wage gains. The internet and online retailers of Amazon.com (AMZN) - Get Report have ushered in a new era of productivity, competition and price transparency. According to Powell, the low inflation rate might just be "transitory" -- that is, linked to short-term price trends that will soon reverse.
And, of course, central banks in the U.S., Europe and Japan are still trying to understand the economic implications of their unprecedented efforts to flood global markets with trillions of dollars of freshly printed money in the decade after the 2008 financial crisis, part of an effort to revive markets, economic activity and confidence.
There's no shortage of opinions on what to do, either. The primary option seems to be to tweak the Fed's economic models to let inflation run above the 2% target long enough to offset earlier periods in which prices were rising at a sluggish pace, according to a report last week by economists for the German lender Deutsche Bank. That would imply that interest rates would stay low for a while.
And some Fed officials have said recently that they don't really see the need for any change.
Risks are high. If the Fed keeps missing its inflation target, its credibility will suffer in the eyes of investors. If the Fed lets inflation zoom past 2%, investors might then start to wonder how much further prices might rise if left unchecked.
Another concern is that official U.S. interest rates, currently set in a range of 2.25% to 2.5%, are so low by historical standards that the Fed would have less room to cut them if a severe economic downturn materialized. Although central banks in Europe and Japan have desperately tried cutting interest rates to negative to keep their economies from foundering, the Fed has resisted the move, referring to 0% as the "effective lower bound" of monetary policy.
"The proximity of interest rates to the effective lower bound has become the preeminent monetary policy challenge of our time," Powell said in opening remarks at the conference on Tuesday.
Ethan Harris, global economist at Bank of America, said he thinks the Fed may have already made a "small tactical mistake" -- by dragging out the review process for so long; it was originally announced last November.
"Experimentation such as this by one of the world's most important central banks is a risky endeavor with unknowable costs and benefits," the Deutsche Bank economist wrote.
Even so, there's little pressure on Powell to move quickly on any interest-rate decisions or even long-term monetary policy given the subdued U.S. inflation rate and a labor market that's holding up despite Trump's intensifying trade war with China.
And there's even less certainty on how the Fed should respond to the trade concerns; a recent study by the Federal Reserve's New York branch found that the average household could see $800 a year in extra costs as a result of Trump's new tariffs on Chinese imports.
"We do not know how or when these issues will be resolved," Powell said Tuesday. "We are closely monitoring the implications of these developments for the U.S. economic outlook."
So it might turn out that the Fed's existential crisis offers a convenient rationale for Powell to do as little as possible until the economy breaks one way or the other.
Powell himself warned in a speech in March that he expects the strategy review to "produce evolution rather than revolution."
According to Deutsche Bank, the Fed isn't likely to announce any changes stemming from its strategic review until the first half next year.
By then it might be time for another strategic review.