Adam Posen on the Dangers of Jerome Powell's 'Rifle Shot' Jackson Hole Speech

SPEAKER_1 (0:03)

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Joe Weisenthal (0:20)

Hello, and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal.

Tracy Alloway (0:25)

And I'm Tracy Alloway.

Joe Weisenthal (0:27)

So Tracy, I don't know if I would describe the mood here at Jackson Hole. So by the way, we are recording this August 23rd, the day of Powell's big speech. I don't know if I would describe the mood as like declaring victory per se, but I would say on the narrow question of like, is the problem of inflation over the verdict seems to be, yes, it is.

Tracy Alloway (0:51)

I think the big difference for me is last year in 2023 There was a lot of discussion about the idea of the trajectory of inflation was looking pretty good. The direction of travel was where the central bank wanted it to go, but there was still a lot of caution about the risk of an upside surprise, and inflation could come back. We saw that to some extent in Q1 of this year, but I don't think it was the degree that necessarily people were worried about in August 2023 But anyway, the big difference this year is, I don't really see a lot of talk about that tail risk of inflation coming back.

Joe Weisenthal (1:32)

That's right. Last year, we were all here in Jackson Hole, looking out at the Grand Tetons and observing how the two mountains kind of resembled the two spikes in the inflation.

Tracy Alloway (1:43)

Arthur Burns was sort of looming in the background.

Joe Weisenthal (1:46)

Yeah, basically the mountains look like a chart of 1970s inflation is like, oh, is there another way? Anyway, most people is like, yeah, okay, the risks are on the labor market side and there's probably many good reasons to think that's where the risk lies. But look, the Fed is pretty clearly going to start its cutting cycle in September. Other than that fact, which is not technically a fact yet, but other than that fact, there is still a tremendous amount of uncertainty. What the cutting cycle will look like, the speed, the intensity, how the data will cooperate or not, many open questions.

Tracy Alloway (2:19)

Absolutely.

Joe Weisenthal (2:20)

All right. Well, I'm very pleased to say we do have the perfect guest to talk about some of these themes and risks. We talked to him last year and had a great conversation, so we're like, let's follow up. We're going to be speaking with Adam Posen. He is the president of the Peterson Institute for International Economics. He was also at the BOE for a while, so a perfect person to talk about some of these themes. Adam, thank you so much for coming back on Odd Lots.

Adam Posen (2:42)

Thank you for working me into your Jackson Hole tour schedule.

Joe Weisenthal (2:46)

We got to. You were there in the room in the speech. Tracy and I weren't. We were just right on the website. Although I think actually that's probably faster, more efficient way to consume a speech than listening to the whole thing. But what was your takeaway?

Adam Posen (3:00)

The speech was fine as far as it went, but it didn't go very far and it should have gone farther. So I think, Joe, he was very clear, the chair was very clear that we've reached the end of their hiking cycle, we're into the loosening cycle, and that their key concern is about a sharp fall off in employment in the US. And again, that's perfectly reasonable. The issue is, though, how narrow the speech was. It was narrow in terms of timeframe. It was really only relevant for the next couple months. It doesn't touch anything about looking out beyond that. It was very narrow in its discussion, not only of the victory lap, although Powell would never call it that, reflecting on how we got here or going forward, in that it basically talked about labor markets, labor markets, and a tiny bit about supply shocks. And it was very narrow in that we're at a conference, which topic is the important issue of monetary transmission mechanism, which in normal people speak is how effective and why are interest rates able to change the course of the economy. And he gave absolutely no hints about that issue. So it was a very limited speech. There are contexts where a very limited speech is good. Two years ago, Powell gave what I consider a perfect speech. It was a rifle shot. It was only eight minutes long. And all he was saying was they're gonna keep going until inflation beast is slain. And that at that time, with that facing them and them being so far away from where inflation needed to be, was the right move. But in the context we are now, where we're not facing a crisis, where you're basically doing risk management over the next couple of months, which means just trying to balance things.