Fed Chairman Powell could have a few surprises in store for the market

Finance


One such way of keeping the public better abreast of what the Fed is up to would be having Powell go into more detail after each meeting. As things are done now, the Fed chair holds question-and-answer sessions with the media only once a quarter, when officials update their economic expectations.

Having news conferences at the other four FOMC meetings has been discussed before and could get another hearing now that there’s a new chairman.

The impact would do more than simply provide information. In the market’s eyes, it would make every meeting “live,” or one where the Fed could raise rates or enact other policy changes. With the current setup, the market has come to expect that rate hikes only will happen when there’s a Q&A after.

Doing so further might make investors show a little more caution about risk, for which Powell has expressed concern.

“We are not making a call that this change will happen, but we think there is a material possibility that it could,” Krishna Guha, economist at Evercore ISI, said in a recent note to clients. “The effect would be to make the market view all eight Fed meetings a year as ‘live’ meetings at which the FOMC might decide to raise/lower interest rates and in the near term at least it would come over hawkish.”

Such a change isn’t likely to happen soon.

But given Powell’s concern over market behavior it would be a tool worth considering depending on how conditions unfold over time.

“Given the inflation numbers, if he decides they need to raise rates a little more quickly, this would give them a little more flexibility,” said Gus Faucher, chief economist at PNC. “

“Is it going to make or break the Fed? I don’t think so. They have gradually over time moved to more transparency, which I think is a good thing,” he added. “The marginal benefit of having the press conference after every meeting is pretty small.”

In fact, Joe LaVorgna, chief economist for the Americas as Natixis, thinks the Fed should do less talking, not more.

Central bank officials have suffered through moments of clumsiness through the years, with sometimes disparate messages along with forecasts that often have not aged well.

In fact, one other change Powell could bring to the Fed, according to observers, is eliminating the quarterly summary of economic projections and coming up with some alternative to show where officials believe GDP, unemployment and inflation are heading.

“I’d probably do fewer meetings and fewer press conferences,” LaVorgna said. “It’s not as if the Fed has a crystal ball. Their forecasts have been worse than consensus for a long time. You’re just going to get more disinformation.”

WATCH: Powell’s communication challenge.



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