Macroeconomic & Geopolitical

What Jay Powell Really Meant

September 2022 – 4 min read

Read what the Fed Chair was actually thinking as he read his script.

Experimental transcription software now permits recording what a speaker is thinking as well as saying. In light of the Fed’s more limited “forward guidance,” we offer this record of what was on Fed Chair Jerome Powell’s mind Wednesday as he delivered his opening statement announcing the latest rate hike.

“Good afternoon.”


“My colleagues and I are strongly committed to bringing inflation back down to our 2 percent goal. We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”

You don’t think we have the guts. But listen up! The second-to-last thing we want to do is trigger a recession. The last thing we want is Paul Volcker’s ghost haunting our dreams.

“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.”

Did you notice? I said ‘price stability’ three times in three sentences.

“Today, the FOMC raised its policy interest rate by 3/4 percentage point, and we anticipate that ongoing increases will be appropriate.”

Ha! Take that! And it was unanimous, again!

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2 percent.”

Yes, 2 percent! Remember when nobody thought we could get it above 2? Those were the good old days.

“In addition, we are continuing the process of significantly reducing the size of our balance sheet….”

No, we don’t really know what that will do, but something always explodes when rates rise. Sometimes it’s Orange County. Sometimes it’s Lehman Brothers. We’ll just have to see.

“Growth in consumer spending has slowed from last year’s rapid pace, in part reflecting lower real disposable income and tighter financial conditions. Activity in the housing sector has weakened significantly, in large part reflecting higher mortgage rates….”

See, it’s starting to work. Mortgage rates above 6%, baby!

“As shown in our Summary of Economic Projections, since June, FOMC participants have marked down their projections for economic activity, with the median projection for real GDP growth standing at just 0.2 percent this year and 1.2 percent next year, well below the median estimate of the longer-run normal growth rate….”

Look, I’m the Fed chair. I can’t come out here and predict a recession. But you will notice I’ve stopped using the word ‘softish.’

“Despite the slowdown in growth, the labor market has remained extremely tight, with the unemployment rate near a 50-year low, job vacancies near historical highs, and wage growth elevated….”

Are you kidding me? The job market is still hot, hot, hot! I know about layoffs at Goldman Sachs, but we need more than anecdotes from your cocktail parties. Look at all the job openings! Look at wage growth!

“The median projection in the SEP for the unemployment rate rises to 4.4 percent at the end of next year, one-half percentage point higher than in the June projections. Over the next three years, the median unemployment rate runs above the median estimate of its longer-run normal level….”

It’s not that we want to throw all these people out of work, but we’re not magicians here.

“Although gasoline prices have turned down in recent months, they remain well above year-earlier levels, in part reflecting Russia’s war against Ukraine, which has boosted prices for energy and food and has created additional upward pressure on inflation….”

Did any of you watch Putin’s crazy speech? This is going to get a lot worse before it gets better.

“Despite elevated inflation, longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.”

This is for you super-hawks out there rooting for really cranking up the fed funds rate above 5% or higher. Long-term expectations are under control, so calm down. And I mean you, Larry Summers.

“My colleagues and I are acutely aware that high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation….”

Yes, we go to the grocery store, we fill up our gas tanks. At least, we know people who do.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy….”

You’re all still wondering when we’re going to start cuts? Pay attention. We’re not thinking about thinking about cuts yet.

“We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply….”

I know everybody says the Fed can’t do anything about supply shortages. But if we throttle demand enough there won’t be any more shortages.

“To conclude, we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals.”

Blah, blah, blah.

“Thank you, and I look forward to your questions.”

And I know exactly what you’re going to ask.


Christopher Smart, PhD, CFA

Chief Global Strategist & Head of the Barings Investment Institute

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