Powell Wants to Create Some Mystery Around Fed Meetings
A slower or faster pace of rate hikes, an extended pause, or even a cut are all possibilities at this point.
The Fed may no longer be on autopilot.
Photographer: Andrew Harrer/Bloomberg
Change is in the air at the Federal Reserve. Chairman Jerome Powell’s semiannual monetary policy testimony in the Senate gave a big hint that we can no longer count on the explicit policy of gradual interest-rate hikes to continue too much longer. That doesn’t mean gradual rate increases will end, only that the Fed will rely less on forward guidance. A slower or faster pace of hikes, an extended pause, or even a rate cut are all possibilities at this point.
In his testimony Tuesday, Powell added the qualifier “for now” as he reiterated the Fed’s commitment to the current policy of gradual rate increases. This addition signals that the Fed is preparing for a shift in their policy guidance. Why prepare for a shift? Policy rates will soon approach the central tendency range of what policy makers estimate to be neutral, currently 2.8 percent to 3.0 percent. But that range is just an estimate. The true neutral rate is unobservable.