After a presentation dogged by muffled audio and then climate-change protesters, Fed Chair Jerome Powell finally got his message across, which was, basically, that he didn’t have one. It was “historically unusual” that inflation has come down without unemployment rising. Geopolitical tensions are “highly uncertain.” In the Q&A, he talked of the idea that the 20 years before the pandemic may have been a perfect storm of disinflation that may now yield to a period of more supply shocks. “Are we going into such a… I don’t know.” At the margin, while the rise in long-term yields could reduce the need for rate hikes, “that remains to be seen,” Powell said.
While Powell’s views on the future were muddy, the past shows an aggressive tightening that has left the effective federal funds rate at 5.33%, above the average of 4.6% that it’s been dating back to 1954. “Rising interest rates operate negatively on most assets and the economy at large with a lag. These changes are not temporary, and there will be interesting and painful consequences that naturally befall a world that coasted for over a decade on low rates and free money,” said Jeffrey Bronchick, who runs …
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