How Jay Powell Could Be Walking His Tightrope

Jerome Powell has to balance solid economic policy and political optics concerning President Trump. Here's how he's doing that.
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Federal Reserve Chairman Jerome Powell has sounded increasingly measured in his last two public appearances. 

But there could be a method to his madness. 

After Powell made reference to the possibility that there will be fewer interest rate hikes in 2019 than initially expected at The Economic Club in New York, stocks surged. Powell said interest rates are "just below" neutral, meaning that there may not be all four rate hikes in 2019. For now, it seems there's a 'One and Wait' policy at the Fed. 

"He really didn't mean to pigeon-hole himself into saying 'I'm committed to three or four more rate hikes' through 2019," said Danielle DiMartino Booth, former adviser to the president of the Dallas Federal Reserve. Now that housing prices, oil prices, and even the stock market have all dropped considerably of late, four rate hikes may not be a good thing for the economy. 

Still, there's a flip side to Powell's walking back of his hawkishness. He doesn't want to seem as if he's yielding to President Trump's wishes that the Fed slows down its rate hiking path. Powell had been hawkish for much of 2018, so in his latest remarks, "he really had to back off of that without looking like he was kowtowing to politics," DiMartino said. 

"He wanted to reorient, if you will, investors away from their rigidity with saying 'oh my gosh,' we've got at least four more in 2019,'" DiMartino added.