We need Powell to be boring and forgettable

It’s not hard to imagine Federal Reserve Chair Jerome H. Powell blasting the song “Let the Good Times Roll” in his office lately. Many had predicted he would be Mr. Doom who caused a recession. Instead, he’s presiding over an economic boom.

Growth accelerated in the second half of 2023. Hiring remains robust. Americans are still on a spending spree. The stock market hit an all-time high. Lowerwage workers have seen strong pay gains. Inflation is almost back to the 2 percent target. The U.S. economy isn’t just good; it’s the envy of the world.

Predicting what will happen in 2024 is tricky. But an easy way to tell whether things will go well this year is to see if Powell becomes forgettable. The less he’s in the headlines and talked about on TikTok, the better the economy is probably doing.

There’s one task left on Powell’s to-do list: cut interest rates. There’s no rationale for rates to remain at nearly 5.5 percent. Keeping them there would be akin to slamming the breaks on the economy. Rates were intentionally raised to slow spending in an effort to tame inflation. Powell is honest about this. At his December news conference, he referred to “restrictive” rates nine times and said it was necessary to keep them until “we’re confident that inflation is on a path” back to target. Now the Fed can be confident. Inflation continues to trend down. The preferred inflation measure came in at 2.9 percent (annualized) in December, which is within striking range of the goal. The Fed should acknowledge this – and lower rates.

The greatest risk now would be for the Fed to keep rates so high this year that they cause a recession. As Powell himself said in December: “You’d want to be reducing restriction on the economy well before 2 percent because – or before you get to 2 percent so you don’t overshoot.”

If “restrictive” was the Fed buzzword in 2023, it should be “normalize” in 2024.

Forget the debates about whether this is a “soft landing” or “no landing” scenario. The

Fed can start sending a message that the economy is healthy and close to the inflation and job targets set by Congress. The Fed needs to lower rates enough to get the housing market moving again. This doesn’t mean huge cuts, but getting back below 5 percent could make possible a lot more purchases and projects.

Ideally, rates would be back under 5% by this summer. While Wall

Street is salivating at the prospect of even lower rates, Powell could argue that the Fed is at least no longer causing a recession and is merely allowing the economy to move mostly on its own terms.

The truth is, interest rates haven’t been normal in almost 20 years – since before the big 2007-2008 financial crisis. It’s difficult to remember a time when the Fed wasn’t furiously trying to prop up the economy and banking system with ultralow interest rates or, in the past year, trying to squeeze out inflation with high rates. Wall Street and many businesses and consumers had become addicted to “cheap money.” Already, people are eyeing the potential rate cuts as a sign that cheap money is back. Changing that narrative will be hard. But if Powell can get rates back to something close to normal, it could be the greatest achievement of his Fed tenure.

There’s also a strong case to be made for starting to cut rates in March that has to do with politics. Beginning rate cuts soon and holding them by the end of summer would lessen the Fed’s influence on the election.

The greatest gifts Powell can give the nation are no recession in 2024 – and a return to boring Fed policy.