Good morning.
A new Fed chief, Jay Powell, takes office in Foggy Bottom this morning. Back in October, I wrote that the “odds are high…he will face a financial crisis early in his term.” I didn’t guess it would start on day one… or indeed, three days before day one. So much for the honeymoon.
The Fed’s main job is intangible—to ensure confidence in money, markets and the economy. But Friday’s 665 point drop in the Dow measured confidence contracting. Traders are suddenly worried about interest rates (although anyone older than 30 has to be amused that 2.85% on the Treasury 10-year is a source of panic), worried about inflation (although after the last decade of stagnant wages, Friday’s 2.9% rise should be cheered, not jeered), and worried about a tax-fueled spike in growth (with this reportfrom Powell’s Atlanta colleagues leading the way.) A more legitimate reason for concern was last week’s report showing productivity fell in the fourth quarter—since ultimately, rising productivity is the only way growth can be sustained.
I’m guessing Alan Greenspan’s “bubble” comments last week also had something to do with the swoon. Greenspan himself, of course, was tested by the markets on Black Monday in 1987, only two months after taking office, when the Dow fell 508 points. (I know… it’s a much bigger percentage: 23% versus 2.6%.) Greenspan’s smooth handling of that crisis helped reinstill confidence. And it’s worth noting that expansion continued for three more years.
In any event, probably wise to buckle up. The Fed’s historic, decade-long experiment with hyper-low interest rates is coming to an end. And the return to normalcy is likely to be anything but normal. Let’s hope Powell is up to the job.
By the way, Janet Yellen announced Friday she’s joining Brookings’ Hutchins Center for Fiscal and Monetary Policy, funded by Silver Lake co-founder Glenn Hutchins and headed by my former Wall Street Journal colleague David Wessel. (It’s also home to Yellen’s predecessor, Ben Bernanke.) As a send-off, Powell turned his coat collar up, in honor of Yellen’s preferred power-fashion.
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