The Daily Telegraph - Saturday - The Telegraph Magazine
Jerome Powell
He may look like a suburban accountant or bank manager but there’s a strong argument that Jerome ‘Jay’ Powell is, with the possible exception of Vladimir Putin, the most important person in the world right now. Money makes the world go round, but interest rates determine how fast it spins. And Powell, as chairman of the US Federal Reserve, has his hand on the most important lever.
The world is struggling with two huge economic problems at the moment: rampant inflation and an incipient slowdown that could easily morph into a recession. This means central banks, of which the Fed is the world’s most important, are firmly skewered on the horns of a massive dilemma: the best way for them to tame inflation is by increasing interest rates but the best hope of reviving the economy is by lowering them.
In the slightly weird argot of economic commentary, those policy makers more inclined to loosen monetary policy and lower rates are called ‘doves’; those that err towards tightening policy with higher rates are branded ‘hawks’.
Right now, Powell has his talons sharpened to razor points and is swooping in for the kill as the world’s inflation-buster-in-chief.
In November the Fed made its fourth three-quarter-point hike in a row – the first time in history it had moved so hard and so fast. Somewhat scarily, Powell has been using language that very deliberately evokes memories of Paul Volcker, a former chairman of the Fed, who raised interest rates from 11.2 per cent in 1979 to 20 per cent in 1981. In fairness, Volcker did eventually get a grip on price rises but only by deliberately driving the economy over a cliff.
This month, having again increased interest rates, Powell said that Fed officials may continue to take harsh action to tackle inflation. He warned that ‘substantially more evidence’ was needed to be confident that inflation has abated. ‘It’s good to see progress, but let’s just understand we have a long way to go to get back to price stability,’ he said.
Powell, a registered Republican who was born and raised in Washington, DC and made a fortune as a lawyer and investment banker, was appointed by President Donald Trump but earned bi-partisan praise for his handling of
POWELL HAS HIS TALONS SHARPENED TO RAZOR POINTS AND IS SWOOPING IN FOR THE KILL
the economy through the pandemic. He’ll need to draw on all his political savvy in the coming months.
Global investors and economists are hanging on every word Powell utters in the expectation he will ‘pivot’ from trying to tame inflation to reviving the economy. So far he’s disappointed them. That means the pivot will likely happen in 2023.
But will Powell change direction too early, too late or, by some miracle, at just the right time? The health of the US economy (and by extension that of the rest of the world) depends on the answer to this question.