Powell Era Provides an Opportunity to Re-Think FRB Policy

According to a Bloomberg article, the Federal Reserve Board (FRB) leadership transition to Jerome Powell may signal a more robust FRB approach that takes into account a strong labor market and global economic recovery. The article notes that Powell's appointment provides an opportunity to refocus the message and change the way that the FRB signals responsiveness to economic conditions that could brighten more quickly than expected. However, the article also notes that the FRB has become "straitjacketed" when it comes to timing its policy moves, according to Bloomberg. Investors have already penciled in about three rate hikes this year, which is a constraint that incoming Chair Powell will likely need to address. 

Among the changes that Chairman Powell could bring would be to increase the number of press conferences, holding them after each of the eight scheduled policy meetings, instead of after every other meeting, which is current practice. This could signal to investors that every meeting is "live", according to Bloomberg. "The probability of going to eight press conferences a year could be pretty high under Powell," said Seth Carpenter, a former senior adviser at the FRB who is now chief U.S. economist at UBS Securities in New York.

Powell could also depart significantly from Yellen and talk about prominent risks to the outlook and how the FRB might respond. It's a "what if" exercise that the FRB staff already provides to policy makers before every meeting, according to Andrew Levin, a Dartmouth College professor and former Yellen adviser. "Powell has a mandate to make the Fed more systematic and more transparent -- that is what many members of Congress have wanted to see," Levin said. "I think Powell can move things forward."

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