A highlight from The Fed, Inflation and Interest Rates: Whats Ahead?
Wharton school at the university of pennsylvania busch chairman of the federal reserve. Drome powell is one of the most important people dealing with the issues around monetary policy right now. His recent address from the jackson hole summit gave us some more insight as his thought process. About how the fed should react to the economy during this time of the krona virus christina. Skinner is assistant professor of legal studies in business ethics with the wharton school. She has reviewed his speech again and she joins us to give us. Her thoughts christine. Thanks for a few moments today. Karen my pleasure crispy here were you. What were your takeaways from from. What Chair powell said during the speech i have to say i think the speech was very well done. The markets reacted very favorably. Even as it delivered three quite significant messages so i there was an an acknowledgement by powell that yes. We're seeing inflation above two percent for the first time in a very long time but in the feds view. This is temporary transitory as we say second team message. I think that the fed is going to start pulling back from some of its crisis. Era interventions specifically. It's likely going to slow the pace of asset purchases now in my you. This is the most significant policy decision. If you will that was revealed in this speech the fed is now clearly committing to an intent to start exiting from. Qe now this might seem very attenuated. An intent to commit to something but in fedspeak it's quite significant statement and then third. The sad isn't planning to raise rates right now and it makes sense. It would have been unusual for the fed to have both raised rates and decided to back down from asset purchases. It was probably always going to be one or the other once. We hit recovery mode with the question of sequencing which one was going to come. I one of the things. I as you mentioned he talked about is keeping asset purchases at the current until there is quote substantial further progress towards our maximum employment and price stability goals and quote Impart were we know. Were not there on maximum employment. Today's report just obviously kind of highlights that right now so for not there. What does that mean. Then for the federal reserve. I would imagine this idea of tapering continues to move back a little bit further at this point no i think how actually signaling somewhat of the opposite in his in his speech. message from the chair is that you know the things we are actually there. And it's looking primarily at right now now. The fed wanted to push inflation a bit higher than two percent consistent with its new makeup policy. That's part and parcel of its new framework. And he's saying that were there in regard to inflation. And i think the message is that employment and growth general recovery if you will also heading in the right direction notwithstanding maybe some bumps along the way so i think the fed is very clearly committing. Its intention to start yelling back from some of its emergency or crisis fighting measures against starting with asset purchases and the fed will have thought very long and hard about whether it was time to announce us. And so i think there's a pretty high bar at this point from diverting course he did bring up in terms of where we are with the economy right now in the recovery the unevenness that is out there at the moment. Yeah yeah so. there's you know. The fed has made a real effort to be mindful and communicate about what's happening in the real economy. Also the distributional impacts of recovery and its policies so different groups will be affected differently. If and when the fed tightens. And i think that's probably one reason. Why the fed has chosen to slow asset purchases before raising rates so the fed is of the view that raising rates prematurely can be worse for lower wage. Earning groups now. Meanwhile there's been some thought and conversation around the fact that asset purchases. Qe quantitative easing is not that helpful for inequality and it's because qe tends to benefit asset holders and can heard wage earners to the extent inflation comes along with sustained prolonged asset purchases. I find it also interesting cristina that i think the expectation is that when you're a member of the federal reserve governors board regional fed president that you're looking at the larger scale data a lot of these reports that are coming out weekly monthly etc bid. Chair pal did allude to the fact that in some of his review. He's looking at more micro data like used car. Prices like where prices on hotel rooms in airline tickets. A lot of these different kind of components that make up some of these larger reports. He's focusing on on that. As we move forward exactly exactly and i think this is part of the overall messaging. Powell is doing to anchor inflation expectations and to really drive home. The message that the inflation. We're seeing is transitory. You know in regard to that different data sets that the fed is looking at the side often thinks about inflation by excluding certain groups that have prices that are made more volatile due to temporary supply changes or seasonal factors neither usually food and oil prices that are