Economists warn: Powell's speech at Jackson Hole is misleading
Economist Adam Posen criticized Federal Reserve Chairman Powell for being too narrow in his speech at Jackson Hole, emphasizing only labor market factors without considering other economic factors, which could be misleading. He mentioned the importance of productivity, fiscal policy, and trade policy on the economy, and pointed out that current labor market data does not indicate an economic downturn. Posen hopes that Powell will provide a more comprehensive economic analysis rather than just focusing on recent data
In a brief 16-minute speech at Jackson Hole, Powell emphasized the recent US labor market data and acknowledged that the Fed is about to adjust its monetary policy direction in response to the soft labor market data.
However, Economist Adam Posen believes that Powell's speech is too limited and does not cover other economic factors, which could blur the overall economic picture.
Posen said, "The labor market is one of the most important factors determining inflation in the business cycle, but there are other factors." He mentioned productivity growth, fiscal policy, supply shocks, and trade policy.
Posen added, "(Powell) seems to act as if these other factors are irrelevant, and the only important thing is the labor market, I think this is misleading."
Posen said that while the US labor market is not as hot as it was a year and a half ago when the unemployment rate hit a post-pandemic low of 3.4%, the country still has some positive data.
The US labor force participation rate has reached its highest level in years. Additionally, despite the unexpected rise in the unemployment rate to 4.3% in July, this is still considered by economists to be a full employment level.
Posen said that these numbers do not seem to indicate an impending economic recession.
Posen said, "That's why I hope Powell can provide a slightly more complex, detailed, and broader discussion, rather than just focusing on the labor market and inflation data of the past few months."
Posen likened Powell's speech style to his brief and straightforward speech in 2022, but Posen believed that at that time, the concise approach was more appropriate.
Posen said, "Two years ago, Powell gave a speech that I thought was perfect, it was a 'precision shot' . The speech was only eight minutes long, and what he said was that they would keep going until the inflation beast was tamed."
But now, Posen believes that Powell could have covered a broader time frame, not just focusing on the next few months, and could have mentioned some key themes that people expect to hear at the Fed meeting.
Posen added, "In the context we are in now, we are not facing a crisis, we are basically just risk-managing for the next few months, which means that the potential rate cut by the Fed is just an attempt to balance various factors, and the 'precision shot' at this point is misleading the public. This is not a good speech."
Powell did not discuss how the economy got to its current state or how interest rates are changing the course of the economy.
Posen believes that the focus of the speech on such a short time frame is partly due to political considerations, namely that the Fed does not want to appear partisan before the November US presidential election.