Why does Jerome Powell have a haunted look?

Why does Jerome Powell have a haunted look?

Federal Reserve chairman Jerome Powell. His Open Market Committee is divided and uncertain about the US outlook. Bloomberg That episode demonstrates the pitfalls of real-time policy making. One year later, the Bureau of Economic Analysis trimmed almost half a percentage point from GDP growth for 2018, and the Bureau of Labor Statistics revised downward its estimate of monthly employment gains. Among the mechanisms by which an increase in interest rates slows aggregate demand is the foreign-exchange market. When the Fed is set on tightening as other central banks hug the effective lower bound of their nominal policy rates, the dollar’s value rises. Essentially, dollar appreciation is a channel through which policymakers “donate” domestic economic strength to US trading partners that now have weaker, more attractive currencies. With the ECB’s policy rate distinctly negative and its asset-purchase program running out of steam, Draghi especially appreciated the gift of easier European financial conditions last year. Of course, the transfer of domestic economic strength by an independent agency, the Fed, displeased the chief executive, and withering criticism ensued. But it was not Trump’s carping about dollar appreciation that led the Fed to change course. Rather, Trump’s trade policies elevated uncertainty about investment and growth. Investment in long-term capital is always risky for a business. When doubt about such an investment emerges before concrete is poured, less concrete will be poured. The currency play By early 2019, the Fed viewed this new economic headwind as obviating the need to continue raising the federal […]

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