Alan S. Blinder
Vice Chairman and Co-Founder, Promontory Interfinancial Network
Professor of Economics and Public Affairs, Princeton University
Jay came, Jay saw, Jay conquered.
Well, maybe it wasn’t that hard a conquest, but Jerome (“Jay”) Powell’s first Federal Open Market Committee (FOMC) meeting as Chairman of the Federal Reserve has to be scored a success. He delivered the widely expected, 25 basis-point increase in the federal funds rate on a unanimous vote. Yes, it’s true that the FOMC is smaller (only eight voting members these days) and a lot less fractious than it used to be. The Committee’s hawks and doves are no longer very far apart. But still…
He and his fellow Committee members nudged the so-called “dot plot” up a bit, apparently without upsetting markets. The 15-member committee is now about evenly split between expecting (or is it favoring?) two or three more rate hikes of 25 basis points each this year, and a total of about six (150 bps) in 2018 and 2019 together. If that comes true, the funds rate will be in the 2.75-3.00 percent range by the end of next year, just about where the Committee sees the long-run “neutral” funds rate to be. But consistent with a belief that they’ll have some mild overshooting to combat, the FOMC also penciled in another 50 basis points of tightening in 2020.
The Committee bumped up its real GDP estimates for 2018 and 2019 by amounts that are broadly consistent with what the economic consensus—but not the Trump administration—says the new fiscal policies will do to growth. Perhaps more notably, members now project a considerable overshoot of full employment—with the unemployment rate trailing down to 3.6 percent against an estimated NAIRU of 4.5 percent. Yet they barely touched their inflation forecast. That’s a pretty flat Phillips curve.
Last, but certainly not least, Powell’s answers to questions at his first press conference were taciturn, and his words sufficiently well-chosen, that he didn’t make news—which is what Fed chairs generally want to do.