"An even more serious consequence of Powell's lack of economic training is the Fed's absence of a medium-term framework for how the economy works."

-Paul Donovan, Chief Economist, UBS

Backdrop:

Authored by GoldFix ZH Edit

It seems UBS Chief economist Paul Donovan perceives Powell as eschewing critical thought in favor of deferring to bad (if not also manipulated) data.

Stepping back for a second; We observe that actual Keynesian economists in general  are getting vocally perturbed with Powell’s unwillingness to ease. Depending on your point of view, (or continent of residence) that’s not a bad thing. The fact is, Powell *is* ignoring real-time streaming data in favor of month-end lagging data for policy decisions.

This behavior, it has been argued, is the opposite of what got us into trouble in the first place, when Powell in 2020 preemptively lowered rates and restarted QE before any month-end data had come in. Therefore, in this way, according to those seeing recession as a bigger risk than inflation The Fed Chair could be solving the last problem and thus be subject to another (this time) deflationary bullwhip by *ignoring* real time data this go around.

If that were to happen, then the next thing that breaks may not be fixable with a special facility etc..That, some think, could entail a hard pivot reversal to QE if the problem is big enough.

We happen to think a controlled demolition of the yield curve (Broken Bond Ladder) is in order and have said so several time in this space. But we’re traders, not trained economists. It also appears our own controlled destruction of the yield curve is effectively a financial triage of European economies by the US.

The UBS Chief economist thinks the risk of not easing is greater than of easing now. From his vantage point in the UK/ EU, that is likely true; But Powell just doesn’t see it that way yet. Here is  an excerpt of UBS economist’s (dryly spoken) commentary, faithfully transcribed with all titles added.

Powell is Not an Economist

[All titles added by GoldFix]

Paul Donovan, Chief UBS Economist Transcription

"As I have occasionally had to point out, U.S.Federal Reserve Chair Powell is not an economist. There's nothing absolutely wrong in that. Many people are not economists.

The world would undoubtedly be a better place if there were more economists in it, but until that happy day arrives, we must expect that not everyone can have an economist's insight.

However, the costs of having a central bank head who is not an economist were on display yesterday.

[Powell (A Lawyer) Isn’t Thinking Critically, and Being Overly Precise]

"Powell made remarks suggesting that inflation was taking longer than expected to return to a 2% target.

• The harmonized measure of U.S.inflation is 2.4% year over year.

• The personal consumer expenditure deflator is 2.5%.

• The core personal consumer expenditure deflator is 2.8;

Any economist knows having a 2% inflation target means having a target range of 1 to 3%, because economic data is never really precise.

Had Powell an economist’s training and focus on detail, he might have said that the fictitious price owner's equivalent rent is taking longer than expected to reach 2%. That is true.

[Does Powell Even Have a Gameplan Now?]

"An even more serious consequence of Powell's lack of economic training is the Powell Fed's absence of a medium-term framework or narrative for how the economy works.

Markets are left with the mantra of data dependency, which is not great when economic data has become progressively less reliable in real time. There's no real understanding of how Powell thinks policy is going to impact the economy.

[Edit- Regardless of if Powell should cut or not, this is a solid point. What kind of "data dependent" gameplan can Powell have if the data itself is increasingly unreliable? ]

Higher interest rates, for longer, are unlikely to change owners' equivalent rent for the better. Indeed, they may very well make it worse.

Durable goods prices have been in deflation for a long time and wage growth is slowing more than expected. The relationship between those trends and policy interest rates would be worth exploring.

This lack of a framework increases financial market volatility because there's nothing but unreliable data to guide expectations.

[Politics Must Be Considered]

"There is a growing risk that Powell is more concerned with the political appearance of policy, which would explain why consumer price inflation has assumed more importance under the Powell Fed, and less with achieving a suitable policy position for the medium term. Continues...

Much more here