Dour Fed, cheery market

Katie Martin (0:06)

Pushkin. Who would be a central banker? Sure, you get to wield enormous power over the economy and markets, but no one likes you, and idiots in the backseat always think they can do a better job than you can. Still, luckily someone still wants to do it, and Jay Powell, Chairman of the US Federal Reserve, had his regular moment in the spotlight this week. The boring bit is that the Fed kept rates unchanged. The interesting bit was what Powell and his colleagues had to say about the state of the US economy. Today on the show, we're asking, what kind of job did he do this month in outlining the risks without spooking the markets? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets economist, here at FT Towers in a properly beautiful day in London. And I've even seen, in fact, my first set of salmon-colored men's trousers in the wild.

Rob Armstrong (1:06)

Spring comes to London.

Katie Martin (1:08)

Spring is sprung, boys and girls. I'm joined down the line from New York by mi amigo, Rob Armstrong from the Unhedged newsletter and by his glamorous assistant, Aiden Reiter. Roberto, the last time we did this hip-hop, we were on a stage in Madrid and it was fun.

SPEAKER_4 (1:25)

Yeah, it was fun.

Rob Armstrong (1:27)

Now we're back, I'm back in the United States, you're back in London, things are back to normal.

Katie Martin (1:32)

Now, listeners, I must tell you that we had a very good time in Spain, Rob and I, but we had rather too much fun one evening. Alcoholic beverages were consumed. Rob, have you recovered? I have just. Barely.

Rob Armstrong (1:46)

We had one of a historically catastrophic hangover. The next day, terrible.

Katie Martin (1:54)

I mean, not going into too much detail, but I think our real mistake was the Martinis at the end of the night. Let's move on. Fed, Fed, Fed, Fed, Fed, Fed, Fed.

Rob Armstrong (2:03)

The Fed, yeah. Very interesting meeting, I thought.

Katie Martin (2:06)

I want to talk about what they did this week, but first I want to talk to you about an interesting new piece of research from CEPR. Listeners, check it out online. Their main point is public perceptions of whether or not the Fed is doing a good job depend hugely on your worldview. So as they say, individuals who believe the Fed shares their political commitments report higher trust, lower inflation expectations and greater independence. Conversely, those who think the Fed is biased are skeptical about the Fed's policy and have higher inflation expectations. Isn't that interesting that an organization that goes out of its way to be as boring as possible attracts such wildly different interpretations of the same set of actions?

Rob Armstrong (2:52)

Well, that's consistent with the rest of what we're seeing in the world right now.

Aiden Reiter (2:55)

Yeah, I mean, partisanship in America especially doesn't really listen to reason, right? Whether or not it's either you're political or you're not. Also, most people who follow politics, I guess the biggest divide in American politics is people who follow politics and people who don't. So if you don't follow politics and you don't know that the Fed is meant to be super independent, you just perceive it as another political institution.

Rob Armstrong (3:17)

What institution is in good standing with people in general right now?

Aiden Reiter (3:24)

It used to be the Supreme Court, but no longer.

Rob Armstrong (3:26)

Yeah. So it's a symptom of a wider problem. But I'll tell you, I think the Fed has done a pretty good job. I'm not one of the terrible Fed critics. Yes, they should have raised rates earlier. No, it wasn't an easy call. And since that initial mistake, I think old Jay has done a pretty good job. Jay and co, I should say.

Katie Martin (3:48)

Jay and friends. So the paper says, it is an interesting read and very accessible. So check it out listeners, if you fancy. But 66% of Democrats think the Fed favors Republicans. 60% of Republicans think the Fed favors Democrats. Go figure.

Aiden Reiter (4:04)

You're not really giving anybody what they want. That's exactly what the Fed should be doing.

Rob Armstrong (4:07)

That's a good review. Both sides are kind of mildly disgruntled, which is right how you want it, right?

Katie Martin (4:13)

Mild disgruntlement and disappointment is exactly what this podcast is after. So this is very much on brand. The conclusion of this paper for what it's worth is that we need more strategic communication from the Fed. I have my doubts around whether that will actually move the dial at all.