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| Jerome Powell |
Disregarding the fevered riots of political controversy, Powell gave a calm, reasoned, and technical economic speech. He explained the causes of inflation and the Fed’s plan to control it. His thesis was that economic decisions should be driven by data. His unspoken point was that the Federal Reserve operates with information, not by politics. (I wish that more decision makers would live by that rule: instead of looking for ways to scream about the political opposition, shouldn’t we pay attention to the facts?) Powell toned down the public’s expectations and presented factual, expert analysis in this critical but low-key speech. Powell’s speech was very much not designed to attract massive public attention. Instead, he sought to clarify policies and calm fears in a speech designed for the consumption of specialists.
The Federal Reserve, of course, operates under a dual mandate: to keep inflation and unemployment alike at reasonable levels. Any economics student knows that those two goals often clash, and Powell examined them with great care.
So, in this speech, Powell attributed recent inflation to factors like the war in Ukraine, “unprecedented pandemic-related demand and supply distortions,” and Federal Reserve policies. Noting that energy and food prices are inherently volatile, Powell focused instead on core inflation. His explanation bulged with numbers, for example:
“On a 12-month basis, core PCE inflation peaked at 5.4 percent in February 2022 and declined gradually to 4.3 percent in July.”Powell supported that claim with this informative but complex slide, which, no doubt, invigorates the thoughts of financial experts even as the public’s eyes glaze over:
Nevertheless, Powell also warned that the economic picture remains unclear and that more work needs to be done to control inflation:
“We can’t yet know the extent to which these lower readings will continue or where underlying inflation will settle over coming quarters. Twelve-month core inflation is still elevated, and there is substantial further ground to cover to get back to price stability.”Powell also explained that the dual mandate would require the Federal Reserve to restrict economic growth to keep inflation down to the 2% target rate:
“Getting inflation sustainably back down to 2 percent is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.”No matter how good your data might be, of course, no one can actually predict the future. In that vein, Powell literally waxed poetic about the need to rely on precise, exacting, but always uncertain data analysis:
“As is often the case, we are navigating by the stars under cloudy skies. In such circumstances, risk-management considerations are critical. At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks.”Given the complexities of economic judgment, combined with politicians’ eagerness to confuse the issues with screaming lunacy, the Federal Reserve is, at least in theory, above politics as it tries to guide the economy in a sound direction. Obviously, economic decision making also requires informed, responsible action by Congress. Sadly, we could lose a lot of sleep expecting something as chimerical as that to happen.
The problem with expert data analysis is that only experts can readily interpret it. To understand serious economic analysis requires, at the very least, that a person understands algebra and analytic geometry. (See the above graph.) Powell’s speech was very much addressed to the audience of experts who gathered for the Jackson Hole conference. He also surely remembered that the financial community was listening; indeed, the stock market immediately reacted by going both up and down (well, down and up in this case), as investors did their best to predict an opaque future from Powell’s data-driven but inevitably uncertain predictions.
Historically, the Federal Reserve Chair tries to avoid emotional and political considerations. Instead, the Chair’s goal in these speeches is precisely to dampen panic, on the one hand, and calm unreasonable expectations, on the other. Powell’s data-driven analysis was delivered to a specialized audience, in an era when the very concept of expertise often comes into question. Powell did not give a speech for the ages. Instead, he reported on current economic policies to reduce uncertainty and calm fears. Needless to say, uncertainty always dominates our lives, while uncertainty leads to fear. Powell did his best.
By William D. Harpine
Earlier Speeches by Central Bankers:
Shaktikanta Das Gave a Central Banker’s Perspective on the Coronavirus Depression
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Research note: Communication critics often engage in what they call genre analysis. They analyze speeches according to audience and purpose, so sermons, persuasive speeches, wedding toasts, and so forth each follow culturally-defined guidelines. Karlyn Kohrs Campbell and Kathleen Hall Jamieson’s brilliant introduction to Form and Genre: Shaping Rhetorical Action is recommended. Speeches by central bankers, which speech scholars usually ignore, may lie in an unrecognized but vital category of their own. Do any genre experts care to comment?
Image of graph, Federal Reserve Bank
Image of Jerome Powell, Federal Reserve Bank via Wikimedia
Image of Janet Yellen, Federal Reserve Bank
© 2023 William D. Harpine
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