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For decades, traders have taught themselves the delicate art of reading the Fed. How does one interpret the bland opacities emanating from the central bank mandarins? What is the correct construal of this otherwise perfectly discreet and well-understood term when it is used by an economist-bureaucrat? This search for meaning in an otherwise bewildering soup of seemingly empty and meaningless and sphinxlike words and phrases all gets very Talmudic, but the banker-scholars that do it have gotten quite good at the task.

So, what, then, are they to make of a non-economist, a lawyer-investment banker most recently playing the private-equity game, taking on the role of High Priest of Monetary Policy? What if he is unable or unwilling to hem and haw and circumlocute, or to deliver every message from on high in a simultaneous flat and grimly serious tone? What if he insists on attempting to use plain English to get the Fed’s message across? What then?

What then? Well, chaos, of course.

While Fed officials that day signaled a milder path for rate increases in 2019 than previously, Mr. Powell made clear they still expected to lift borrowing costs this year. But investors heard Mr. Powell’s upbeat tone as an indication the central bank might go too far.

Stocks fell 8% in the days after the Fed raised rates, and bond yields fell to a 10-month low. Two days after the meeting, it fell to New York Fed President John Williams in a television interview to soothe investors, by stressing the Fed would pay attention to market signals and adjust policy accordingly if necessary.

Ah, yes, a proper central banker sent in to translate his boss’ message from the original English. Whatever were we thinking when we sought and then praised a plain-speaking Fed chair? Who would ever want such a thing?

Early in his term as Fed chairman, beginning in February last year, Mr. Powell received praise from lawmakers on Capitol Hill and market watchers on Wall Street for bringing a plain-English approach to communicating about policy. But the more recent flubs demonstrate the risks of Mr. Powell’s more conversational style as the central-bank head.

“The honeymoon is over. This is part of being Fed chairman,” said Diane Swonk, chief economist at Grant Thornton....

“You do have to choose your words carefully. He likes these conversational settings, and they can be dangerous, as we have seen,” said Julia Coronado, founder of MacroPolicy Perspectives LLC, a New York economics advisory firm. Mr. Powell may be reluctant to engage in the blander “Fedspeak” of his predecessors, “but it does keep you out of trouble,” she said.

Yes, someone please tackle him at Davos or Jackson Hole and send him to a Fedspeak language immersion program immediately. The market cannot take much more of this clear and intelligible guidance.

Plain-Spoken Fed Chairman Sometimes Leaves Markets Confused [WSJ]


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