Honing In On What The Powell Doctrine Might Be

Well, here we are in late summer with all eyes on Jackson Hole, Wyoming, which is one of the more idyllic places in the country. Today, it has the potential of bringing a calmness or creating whitewater like turbulence that upends the stock market.

Fed Chair Jay Powell will be speaking to his colleagues and the world, giving hints at policy direction and perhaps homing in on what the Powell Doctrine might be.

A few months ago, I misread his spoken and written words as someone committed to keeping the good times going by taking bold actions. Staying ahead of the curve is a novel trait at the Federal Reserve, but I thought this chairman would be different.

There’re the unnecessary rate hikes from last year, coupled with several slips of the lip, and perhaps policies driven by emotions.

Quite simply, what we have here is a failure to communicate.

Making matters even more difficult for investors is the fact that everyone else in the Fed can’t stop talking and sharing their philosophies. The thing is that these policies are all over the map, suggesting Powell isn’t doing enough to get the Federal Open Market Committee (FOMC) members and others to buy into his vision. But then again, what the heck is his vision?

I can say this much – in the last two days, bond yields issued siren calls in response to Fed news or scuttlebutt; the 800-point Dow drubbing last Wednesday and the momentary yield inversions. The message is clear. The next policy misstep could trip a domino effect that can’t be fixed until everything tumbles.

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I’m sure all the members at the Fed know the stakes, but I doubt they understand them. When I hear them talk about waiting for the data while ignoring or dismissing pockets of weakness, I worry these are academics cloistered in a world of numbers and spreadsheets. 

Yes, the economy pulled by the American consumer is strong, but it can be stronger and probably should be, considering persistently low inflation.

All the commentary and movement this week has sobered Wall Street expectations to 93.5% seeing a 25-basis point (bps) rate cut, and 0.0% looking for a 50-basis point cut. That’s a big change from a week ago when 31.5% saw a 50-bps cut. 

Approach

We’ve put money to work in the past week, but everyone should have some dry powder.