The remarks of the Fed chairman are associated with one or another bird. Recently, the “hawk” has been nominated, so the idea of the Fed, which would take decisive measures to combat inflation. On the other hand, listening to a little more than the beginning of speeches, cooing pigeon.
Yesterday we mentioned the trend of transforming the economic system to bring it to a state of war. It was Ben Bernanke who launched a car in the United States when he headed the Fed in response to the crisis substandardand since then neither he nor his successors have been able to stop it.
The current one is Jerome Powell. The only one who tried to demobilize, but was deceived.
At the last meeting of the Fed’s governing board, the FOMC, he returned to the position described as ” hawk “, A hawk who would like to fight inflation here, reviving his idea of demobilization.
All is well, or almost
So let’s listen to Powell’s “Hawk” directly:
“Economic activity has been growing rapidly over the past year. […] The economy has shown great strength and resilience. […] There is a risk that the high inflation we see will persist, and there is a risk that it will continue to rise. […]
We have an extremely strong labor market. […] The labor market has achieved significant success and is in many ways very strong. […] Demand for labor remains historically high. […] It is difficult for employers to fill vacancies, and wages are growing at the fastest pace in many years. […]
Most FOMC participants agree that labor market conditions correspond to maximum employment. »
“Households are in better financial shape than before. The companies are in good financial condition. Overdue loans for businesses are low. Banks have high capitalization, high liquidity and are quite stable and strong.
The non-banking financial sector is concerned about money market funds, although the Securities and Exchange Commission has made some very positive proposals. We have also seen some things in the Treasury market during the acute phase of the crisis that we are trying to address. But in general, I would say that the vulnerability of financial stability can be managed. »
Conclusion: having won the war with a great victory, we will be able to gather artillery.
“Orderly and predictable” process
“Monetary policy will be much less flexible. […] The best we can do to support continued labor market growth is to promote long-term expansion, which will require price stability. […]
The central bank’s balance sheet is much larger than it should be. Thus, it is necessary to significantly reduce the balance. It will take time. We want this process to be orderly and predictable. »
We would believe it, wouldn’t we?
We would be wrong!
Because note that Powell did not announce or decide anything, neither the rate increase, nor the date or degree of reduction of the Fed’s balance sheet. He only lined up words and sentences; he created an atmosphere.
Mohamed El-Erian of Allianz immediately noted:
“The Fed has done what I expected, but not what I think is necessary for stable economic prosperity. It had to stop buying assets immediately and give a clearer signal of rising rates. Instead, the central bank redoubled its compromise in 2021, trying to meet financial markets while exacerbating the challenges facing the economy, ie pushing it away from proper policy-making and its own credibility. »
Putting on the hawk’s feathers, Powell agreed with El-Erian, he cooed like a dove:
“I think the path is very uncertain because we are trying to use our tools to ensure that the high inflation we see does not take root. A number of factors contribute to low inflation. »
After all, fighting would not be so necessary…
Powell’s press conference served to strengthen the pigeon’s side:
“There are other forces working this year that should also help reduce inflation […] including supply-side improvements […] Fiscal policy this year will be less favorable for growth […]. Thus, there are many forces that must act during the year for inflation to fall. »
Well, finally, we continue to rely on a spontaneous fall in inflation and cling to the theory of transitional inflation.
In his speech, Powell insisted on the need to be “smart” (repeated four times), but also “adapted” and “modest” (twice):
“It is impossible to predict with great certainty which path will be appropriate for our political bet. That is why we have not yet made any decision on the path to politics. And I emphasize once again that we will be modest and agile. »
Powell was particularly cautious in his comments on the acute problem of balance reduction:
“The issue of balance is still relatively new for markets and for us, so we are less confident. […] Our decisions to reduce the balance will be guided by our goals of maximum employment and price stability. […] It is difficult to inflate and then reduce the balance, and this inevitably leads to surprises. That is why we have changed our views on the balance several times over the years of the previous cycle. »
General Jerome and Dr. Powell
A careful analysis of Powell’s interventions distinguishes two completely different parts. The first is a part of a hawk.
In this part it is necessary to release the claws and give a firm speech. This is what I call the political part, the part for the masses.
In the second part, the priority is to deny, cancel the hawk game and pull the pigeon out of the sleeve again. This second part is intended for generals, the elite, it aims to reassure them and reaffirm: be careful, of course, but we will not hurt you.
Reality is not a set of concrete decisions – immediate or planned – but it is something to wait for, give yourself time, be modest and flexible.
It was thanks to completely uncontrolled manipulations by the media and the Wall Street guru that they reinforced the false hawk message. They did it because it was in their best interest to make people believe it was to work with Powell.
The Fed president is developing “at the same time”: he is not doing anything restrictive, but at the same time, he is saying so that the scale from the speculative market has fallen.
[NDLR : Retrouvez toutes les analyses de Bruno Bertez sur son blog en cliquant ici.]