Last month, Powell delivered a much different performance at his latest news conference.
His words were much more careful and calculated. If they seemed pre-scripted, it’s because they were. He brought a white binder into the room, with colored tabs to organize his responses to questions. When asked about the trade war, another rate cut and market plumbing problems, he looked down at his notes, making clear that each word was deliberate.
Each Fed chair has had to learn just how closely their words are scrutinized for clues about what’s ahead. Their remarks can trigger the movement of trillions of dollars of assets and influence whether the economy strengthens or weakens.
Powell, a Republican and former investment banker, is now 20 months into one of the most powerful jobs in the global economy, and he’s aiming to prove that his communication style has evolved and he is a steadier hand at the helm.
The stakes could hardly be higher. The U.S. economy is at a crossroads, powering past what some assumed would be an expiration date on a historically long run of growth on the strength of consumer spending.
But a slowdown abroad and President Trump’s escalating trade war are menacing the expansion. Investors and business executives are piling pressure on Powell to hold those threats at bay, even while he deals with an unprecedented assault on the Fed from the White House. Trump picked Powell for the Fed chair job but has since soured on him.
In interviews with 20 market players and Fed watchers, nearly all praised Powell for his stoicism in the face of Trump’s frequent swipes at the Fed. But there’s less satisfaction with Powell’s communication to the markets. Over half say he still has problems, particularly as Powell has led a dramatic shift in strategy at the Fed since December, going from raising interest rates then to cutting them now.
“He has struggled to formulate very basic things central bankers should be able to answer, and he hasn’t shown a clear analytical framework,” said Eric Winograd, senior economist at AllianceBernstein and a former staffer at the Federal Reserve Bank of New York.
Powell’s critics point out that the stock market has fallen after seven of the 10 news conferences Powell has given so far, a worse track record than his two predecessors and a sign that investors were surprised by what they heard.
Former Fed Chair Janet L. Yellen brought a thick binder to news conferences. When a reporter asked a question, she would slowly flip through the pages and read lengthy responses.
The binder might seem like a small detail, but it came to symbolize thoughtful and deliberate action in a world where a Fed chair’s words can influence stocks and borrowing costs for millions of American households and businesses.
Powell does the same prep work that Yellen did, according to Federal Reserve Bank of Boston President Eric Rosengren and David Wilcox, the former Fed research director who has helped former chair Ben Bernanke, Yellen and Powell prepare. But Powell opted for a different style. He told reporters he wanted to speak in“plain English” to the American public.
He tried not to look down as often at his notes, making it appear to some that he wasn’t prepared and enabling early mistakes.
“Trying to be conversational is not working given that financial markets tend to overreact to those gaffes,” said Tim Duy, University of Oregon economics professor and author of the “Fed Watch” blog.
In early 2019, Powell started putting several dozen colored tabs into the binder he personally assembles for news conferences so he can quickly flip to answers on any topic. Since the spring, he has brought this enhanced binder along and looked down more often.
Wall Street is buzzing over whether his evolution has been sufficient. The Fed chair’s performance at the July 31 news conference just after the central bank lowered interest rates for the first time in a decade was seen by some analysts as a masterful performance during uncertain economic and political times. But among investors, and even some former Fed officials, the verdict was another thumbs down.
That’s because Powell described the rate cut as a part of a “mid-cycle adjustment,” an attempt to portray the move as a small course correction, not a cut out of fear of an imminent recession, but it was a new term from Powell that caused confusion.
“Mid-cycle adjustment — what does that mean? I have no idea,” said Charles Plosser, president of the Philadelphia Fed from 2006 to 2015. “I was on the inside at the Fed for almost 10 years, and even I find it confusing.”
Seth Carpenter, chief U.S. economist at the UBS investment bank and a former Fed staffer, said Powell has also given different messages this year about whether the inflation rate is in a good place, causing bewilderment.
“The way inflation has been characterized has not been consistent,” Carpenter said.
Powell’s predecessors, Yellen and Bernanke, led the Fed at a time when unemployment was at the highest level in a generation and inflation was low, making it obvious what they wanted — and needed — to do. Powell is leading the Fed at a moment when unemployment is at a nearly 50-year low, but the economy faces an unprecedented threat from Trump’s unpredictable trade war.
“The amount of uncertainty Jay Powell faces in thinking about the Fed’s role in this economy is great or greater than what central bankers have faced in a generation. I would include the 2008 financial crisis in that statement,” said Peter Conti-Brown, a Fed historian and assistant professor at the University of Pennsylvania’s Wharton business school.
Given the circumstances, the Fed’s committee of 10 that sets interest rates is divided on what to do. Two of the 10 dissented in July, and three dissented in September, the most to go against the chair since 2016.
“When the economy is far from where we want it to be, it’s much easier to give a road map than when we are not sure what is going to happen next,” said Rosengren, who voted against the cuts because the economy remains solid. “It’s hard to know if tariffs will be more of a problem or less of a problem.”
JPMorgan Chase CEO Jamie Dimon said the dissent itself, and the attention Fed officials give it by airing conflicting views in public speeches, is part of the problem.
“Most Fed chairs have had a little bit of trouble early on in how they communicate,” Dimon said at a recent Washington event. “And of course, this Fed communicates a lot. If I had one piece of advice, it’s that they should communicate a lot less, and a lot less people should be giving their opinions.”
Powell is unlike recent Fed chairs in his style and background. He does not have a PhD. Chairs like Greenspan wanted to be perceived as a great oracle, but Powell prefers to stress that central bankers’ models are not perfect. This level of transparency and frankness has never been tested before and carries risks.
“People gave Bernanke and Yellen the benefit of the doubt. I don’t think people give Powell the benefit of the doubt,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.
The big challenge now for Powell is pushing back against Wall Street’s — and Trump’s — desire for much lower interest rates. Many investors still want to see two rate cuts by March, moves that would probably make them more money. But Powell’s committee is divided over whether the economy even needs one more cut.
“The perception with market participants is, they can bully this guy into doing whatever they want,” said Brendan Walsh, principal at Markets Policy Partners, an analyst group based in Washington.
At Powell’s news conference last month, he did not use the term “mid-cycle adjustment” and avoided major slips. The stock market ended the day higher.
As reporters pushed him on what the Fed plans to do the rest of the year — and in 2020 — Powell kept saying, “We made one decision at this meeting.” It’s an artful dodge and a reminder that amid foggy conditions, he is operating one meeting at a time.
Many on Wall Street say his performance was better this month, but the bar was low. They, too, are reserving judgment until next time. Trump didn’t wait.
“Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!” Trump tweeted — before Powell’s news conference even began.