Powell Finally Has Markets Right Where He Wants Them
The Fed chair seems to think the dial on financial conditions is at an appropriate setting. Investors are wise not to try to adjust it.
Don’t touch that dial.
Photographer: Nicholas Kamm/AFP/Getty Images
Federal Reserve Chair Jerome Powell believes that monetary policy is carried out through financial conditions, and for the time being he seems to like where they stand. As he told lawmakers Wednesday, “the market has been reading our reaction function reasonably well.”
That markets and the Fed are on the same page is good news for near-term volatility, but Powell’s words also contain a veiled threat: If financial assets recover too far from the recent selloff, he has ways of putting them back in their place. Investors adjust Powell’s dial at their own peril.