The Fed Just Made Its Most Hawkish Turn in 30+ Years (Did Anyone Notice?)

Authored by Daniel Nevins via,

I realize it’s getting late to discuss the June 12–13 FOMC meeting, but I think the Fed’s biggest news from that meeting may have slipped under the radar.

To confirm the relevance of what I thought I heard during the post-meeting press conference, I spent some time last week reviewing old speeches, transcripts and other materials produced by Fed officials. I’m now convinced that Chairman Jerome Powelldelivered an important message that went largely unreported, and I expect him to keep at it until people take notice.

Powell’s message is that he intends to pop bubbles—both asset-price and credit bubbles. He didn’t communicate a precise threshold for bubble popping, but I believe he meant not just big bubbles but potentially little bubbles and possibly even pre-bubbles if that becomes necessary to contain the risks of financial instability. If we take him at his word, we should expect him to respond much more aggressively than his predecessors did to financial excesses, and those aggressive responses will occur even without an inflation threat. In other words, policy adjustments designed to maintain financial stability could disconnect from the FOMC’s inflation target.

One of These Fed Chiefs Is Not Like the Others

Before I present my case, let’s recap the status quo that Powell appears to have toppled—namely, the hands-off approach of his three most immediate predecessors:

  • Alan Greenspan famously wanted no part in popping bubbles, which he didn’t believe should have any effect on monetary policy. He argued that the better approach is to wait for bubbles to pop naturally and then do whatever it takes to clean up the mess. Meanwhile, he relied on the Fed’s regulatory and bank supervisory personnel to maintain a degree of financial stability, although even in those areas he didn’t believe the Fed had much of a role to play.

  • Like Greenspan, Ben Bernanke insisted that monetary policy makers shouldn’t be expected to pop bubbles. In fact, he argued that the Global Financial Crisis wasn’t the FOMC’s fault largely because there was little it could do to contain bubbles, and it wouldn’t have made much sense to change the bubble philosophy while at the same time denying there was anything wrong with it. So for monetary policy, he focused on cleaning up the post-crisis mess, and then he formalized the inflation target that Greenspan had already introduced informally. He continued to rely on regulation and supervision to achieve financial stability. After the crisis, the chattering classes began to call those efforts macroprudential policies.

  • Janet Yellen became the third pea in the Greenspan–Bernanke–Yellen pod. She, too, stressedmacroprudential policies as the primary “tool” for achieving financial stability. She once delivered a speech titled “Monetary Policy and Financial Stability,” but she used the speech mostly to explain why responding to financial excesses through monetary policy can be a bad idea. In an earlier speech, she expressed hope that such policy interventions would be “exceedingly rare.” And in four years of post-meeting press conferences, she only once discussed a monetary policy response to financial excesses, and that was part of a vague answer to a question she ignored until it was asked a second time. In my humble opinion, she was never fully comfortable discussing financial excesses in the context of the FOMC’s monetary policy decisions.

With those points in mind, we’ll take a close look at the June 13 press conference, which was the second Powell hosted as chairperson. In fifty-two minutes of soft-spoken dialogue with the mainstream media, Powell tossed aside the Greenspan–Bernanke–Yellen playbook five times. As you’ll see, the five instances were somewhat repetitive, but I’ll excerpt each one to show how calculated the new message appears to be. I’ll also italicize the key words, starting with an excerpt from his opening statement:

“We are aware that raising rates too slowly might raise the risk that monetary policy would need to tighten abruptly down the road in response to an unexpectedly sharp increase in inflation or financial excesses, jeopardizing the economic expansion.”

The language in this sentence might seem ordinary if read quickly, but comparisons to what we would have heard from Yellen show it was a clear departure. Consider the following observations from my review of Yellen’s press conferences as FOMC chair, beginning with her first in March 2014 and ending in December 2017:

  • When discussing the Fed’s response to an inflation threat, either real or hypothetical, Yellen never included financial excesses as a second possible trigger for policy tightening.

  • She never volunteered any discussion at all about financial excesses or potential financial instability without first being prompted by a question about those topics or without her comments being in reference to the Fed’s regulatory and supervisory roles, not the monetary policy role.

  • She only once acknowledged the possibility of the FOMC responding to financial excesses, but as noted above, that was part of an answer to a direct question that had to be asked twice. It was also in a “well, I would never rule anything out” kind of way. Here’s the exact excerpt: “[I]f the question is, to what extent is monetary policy, at this time, being driven by financial stability concerns, I would say that—well, I would never take off the table that monetary policy should—could, in some circumstances, respond. I don’t see them shaping monetary policy in an important way right now.”

So Powell’s opening statement wasn’t just boilerplate language. Those three words—or financial excesses—never appeared in the same context in any of Yellen’s sixteen press conferences, let alone in the opening statement.

But that was just the beginning. Here’s the next excerpt, this one in response to a question about wage growth:

“Our role though, is also to, you know, to make sure that that maximum employment happens in a context of price stability and financial stability, which is why we’re gradually raising rates.”

Holy triple mandate, Batman, I count three goals in that sentence. Needless to say, Yellen never defined the Fed’s role in the same way. She never elevated financial stability to a position alongside the traditional goals of full employment and stable prices. And take note, Powell was answering a question about wage growth—there was no prompting whatsoever.

The next questioner asked about inflation overshooting the Fed’s target. Here’s the relevant excerpt from Powell’s response:

“We’re going ahead and moving gradually and trying to navigate between two risks, really. One would be moving too quickly, inflation never gets back to target, if we do that. And the other is moving too slowly, and then we have—we have too much inflation or financial instability, and we have to raise quickly, and that can also have bad outcomes.”

Once again, Powell cited financial risks as a potential trigger for monetary tightening. And once again, his phrasing (namely, the conjunction “or”) suggested he could raise rates quickly even without an inflation threat. Whereas Yellen never once listed both inflation and financial instability as threats that could require aggressive tightening, Powell can’t seem to describe it any other way. To state the obvious, his two tightening criteria are two times as many as the single tightening criterion (inflation) used by Yellen and her two predecessors—a neat math fact that explains why I called this the most hawkish turn of the past thirty-plus years.

Later in the press conference, a questioner asked about the neutral interest rate but included an add-on question about the inflation rate. Powell concluded his answer like this:

“It’s worth noting that the last two business cycles didn’t end with high inflation. They ended with financial instability, so that’s something we need to also keep our eye on.”

I enjoyed that he prefaced his conclusion with “It’s worth noting.” He seemed to be saying, “Look folks, you can ask about inflation all you like, and I’ll say all the right things. That’s what central bankers do. But we’re in the twenty-first century—financial instability is the new inflation, and you might like to adjust your focus accordingly. By the way, I’ve already adjusted mine, aren’t you listening?”

Powell then fielded a question about President Trump’s trade war and began his answer like this:

“Sure. So, you know, as I mentioned earlier, I’m really committed to staying in our lane on things. We have very important jobs assigned to us by Congress and that’s maximum employment, stable prices, financial stability.”

With apologies to the youngsters, cue Chandler Bing asking, “Can he be any more subtly and smoothly obvious?” This fifth and last excerpt confirms that Powell’s a triple-mandate guy, referring to the Congressional mandates that everyone else describes as only full employment and stable prices, with financial stability being a separate though related issue. But Powell consistently blends the three together, which you would only do if you feel strongly that financial excesses are a monetary policy matter. In other words, the bits and pieces excerpted above all point to the same conclusion—he plans to react to financial excesses more hawkishly than Greenspan, Bernanke or Yellen did, and he’d like us to get used to the new approach.

Don’t Forget Who You’re Listening To…

Powell’s language strayed not only from his predecessors but also from his own prior comments—he spoke differently at his first FOMC press conference on March 21 than at the June press conference. In the earlier presser, he didn’t deliver any warnings similar to those excerpted above.

I can only guess at the reasons for waiting until June to make his move. He may have waited because stock prices were falling, or he may have decided to act as Yellen-like as possible while people get comfortable with him, or there may have been another reason altogether. Of course, new leaders often stress continuity when they assume power, since they can always sneak in the discontinuities later.

In any case, unless I missed an interview or an op-ed or a message in a bottle somewhere along the way, the June press conference offered the best look yet at Powell’s thinking. It also reinforced a speech he delivered on May 25, which hinted at a new approach but not as clearly as in the following month. And then in his latest speech on June 20, he continued to connect monetary policy with financial stability, once again while claiming a triple mandate and stressing that financial excesses have bossed the third-millennium economy.

As I see it, the progression from March to May to June only adds to the sense that there’s a process of carefully altering the Fed’s message with regard to financial stability policies. Remember, the Fed prides itself on the power and precision of its communications—it even claims forward guidance as a policy tool. If you spend any time listening to speeches by FOMC members, you learn that your behavior and that of every other American is being manipulated by the three or four pages of each six-weekly statement and the fifty or sixty minutes of each quarterly press conference. Or at least that’s the theory. So it seems unlikely that Powell would change the usual language, significantly and repeatedly, by accident.

Summary and Conclusions

To recap, Greenspan flatly rejected the notion that financial excesses should be a monetary policy matter, and he was backed by Bernanke, wholeheartedly, and then by Yellen, who ever so slightly qualified but made no effort to reverse his approach. But according to Powell’s message on June 13, the more than thirty-year period of monetary policy makers insisting they’re not the right people to contain financial excesses is now over.

The new Fed chief said that financial excesses are not only a monetary policy matter but one that’s first equal with employment and inflation. By implication and according to the warnings excerpted above, the FOMC could tighten policy in response to financial excesses even if inflation is well-behaved.

Essentially, Powell announced he’s not afraid to pop bubbles, meaning both asset-price and credit bubbles. Depending on how far he decides to take it, he could even act to prevent bubbles before they inflate. Setting aside the trickier question of whether he’ll be successful at something the Fed hasn’t attempted in many years, he certainly gave us plenty to think about.


Son of Captain Nemo Mon, 06/25/2018 - 13:02 Permalink


FUCKED if he does!... and FUCKED if he "doesn't"!!!

I know Alan, Bennie and little "Zio-Munchkin" Janet are happy they aren't on board the train to take the heat for what they made possible for Jerome?...

I've been waiting 10 long years for this moment, and thank God the light at the end of the tunnel is finally coming the "other way" to "FINISH IT"!!!

I only wish I could see Jerome Powell and Stevie Mnuchin wearing the Anthony Bourdain "ascot" which is all the rage these days!... But knowing what psychopaths they both are unwilling to volunteer on humanity's behalf... It will more then likely be a nail gun to the back the head from a "hired helper" -one can only hope!

DownWithYogaPants Looney Mon, 06/25/2018 - 13:13 Permalink

So the author says imputes virtuous goals to a Fed chief.

But I could and did tell you right after Trump was elected that the FedRes goal would be "Get Trumpy".

That's all this is.  I keep wondering if

  • they will try to hit the economy before the mid terms - maybe hoping for a dem impeachment
  • hit the economy before 2020 reelection
  • both?

Ever since Janet "Jelling like a felon" Yellen said before the 2016 election "oh we gotta go slow with raising interest rates" then after the election she said "oh we gotta go fast" and then wore the hideous purple suit I knew the deep state clowns were going to try to run a purple revolution on Trump.

When you watch news clips notice how many purple ties you see on Deep Staters.  

In reply to by Looney

beebpop NidStyles Mon, 06/25/2018 - 16:03 Permalink

It's ALL THE SAME SPAMMER!!!!  --> ME!!  (I'm BACK!!!)

Adolphsteinburgovich, Hestory, CryptoHomme, Leakanthrophy (PORN)  and  MoreSun (WHACKED RAVINGS)  and Wadalt (Biblicism : "IsraHELL did it")    AND    TodaysFox SPAM ("I made $7000 sucking cock on the Internet") --> IT's ALL THE SAME SPAMMER ---> ME!!! (Hi!)  

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Welcome newbie MoreSun talking some heavy attack shit at 3am!    DARWIN, our Master Spammer is whacked!!!

THIS is an important week here in the SPAMMER's BUNKHOUSE (the leaking moldy single-wide in the trailer park).  This week I (we?) are celebrating SEVEN YEARS AND TWO WEEKS here on ZH, obsessively SPAMMING every thread we can with off-topic comments.  You see, there are dozens of "personalities" living in this one single sad SPAMMER's sick little mind, which he calls "Spammer's Bunkhouse."  How sick is that? 

Each of "us" (these innumerable fake log-on's) is represented by an ACTION FIGURE that Master Spammer ("DARWIN" is his name -- can you believe that?)  lines up on his kitchen counter and TALKS TO!!  WHACK JOB!!!


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>>  "I made $7500 last week on the Internet sucking cock!": that's me.
>>  Biblicism: that's me.
>>  All the porn at Celebrity-leaks: that's me.
>>  Daily Westerner: that's me.
>>  "In the news....SPAMMER broomsticked by furious readers" -- registered in Nigeria) :: that's me TOO!! 

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More Sun  <<<  NEWBIE (a real bacon-loving attack dog!)
Cheoll   <<<  NEWBIE
Powow  <<<  NEWBIE
sanctificado  <<<  NEWBIE

gzcekkyret     <<<  NEWBIE


s12940448 <<< NEWBIE  sucks cock on the Internet -- joined "The Fallen"

ll951983  <<< NEWBIE  sucks cock on the Internet -- joined "The Fallen"
Mr Hankey  [R.I.P]   <<<  total utter WHACK JOB  -- joined "The Fallen"

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In reply to by NidStyles

Scipio Africanuz fauxhammer Mon, 06/25/2018 - 14:43 Permalink

Rather than excoriate him, give him credit for courage, integrity, patriotism, and integrity. Someone has to do it, he's doing it, and warning you in advance, put your financial affairs in order.

If he doesn't do it, the system will bleed credibility so fast, you'll get vertigo. Financial stability is very important, it was the job of Gold but now that we run a Fiat system, it's even more important except we return to a BIMETALLIC STANDARD, which might take some time.

From me to you Chairman Powell, kudos for bravery!...

In reply to by fauxhammer

Scipio Africanuz fauxhammer Mon, 06/25/2018 - 14:44 Permalink

Rather than excoriate him, give him credit for courage, patriotism, and integrity. Someone has to do it, he's doing it, and warning you in advance, put your financial affairs in order.

If he doesn't do it, the system will bleed credibility so fast, you'll get vertigo. Financial stability is very important, it was the job of Gold but now that we run a Fiat system, it's even more important except we return to a BIMETALLIC STANDARD, which might take some time.

From me to you Chairman Powell, kudos for bravery!...

In reply to by fauxhammer

Uchtdorf Looney Mon, 06/25/2018 - 13:15 Permalink

I hope nobody is forgetting who nominated Powell for the Fed Head position:…

L'Orange And In Charge did. (Yes, I know that the decision is made prior to the president, any president, picking anyone.)


And where does Jerome Powell like to hang out? In the Council on Foreign Relations like a lot of Trump appointees. Tsk, tsk, tsk. And y'all thought Trump was going to make 'Murica great again. He's no better than Hillary.

Dina Habib Powell

Jerome H. Powell

Richard C. Powell Jr.

Averill L. Powers

In reply to by Looney

DownWithYogaPants Uchtdorf Mon, 06/25/2018 - 13:19 Permalink

Poor dumb southerner. You apparently don't know anything about what Trump voters think. We tossed a wrench in the gears.  At the very least we got something very very valuable: To wit:

  • the Deep State outing itself in such an obvious way that a significant percentage of the population is being educated in it.
  • Same as first point but directed at the main stream media.   Sort of a repeat since msm is paid lackey of Deep State Banking Cabal.
  • After all this Deep State obviousness on lying / law breaking no one is going to be able to go back to where they started before the Trump's first 4 years.  We've crossed some tangible line in the distrust of government.

Trump is better than Hillary alright.  Low bar.  But nonetheless he is.  None of the above points would have been achieved in such spectacular terms had said wrench not been tossed in the gears.  I laud anyone who had the vision to vote for Trump for achieving this.  My only worry is how do we up the anty after Trump exits office in 2024.

Don't make obviously stupid statements Uchtdorf .

They say conservatives think liberals are stupid and liberals think conservatives are evil.  The real truth is liberals are duped minions of the Deep State that are both stupid and evil.  That's what you get when you seek to get something for nothing cut out of the hide of someone else.

In reply to by Uchtdorf

Uchtdorf DownWithYogaPants Mon, 06/25/2018 - 13:44 Permalink

Do you understand what the CFR is? It is by very definition The Deep State. Many high-ranking officials in the Trump administration are CFR. Did he choose them? Then he's guilty of elitism and of supporting the Deep State.

Was Trump told to choose the CFR traitors? Then he's a puppet like the last dozen or so presidents.

In reply to by DownWithYogaPants

Shaznardicklez… Uchtdorf Mon, 06/25/2018 - 16:32 Permalink

If you were an incumbent presidential candidate and unseated the projected puppet to be president via populism, you LARP as a puppet until the time is right and snip the strings over time.


Why don't you use the Urim and Thummim to see the future on this E.Uchtdorf, surely the seer stones will provide the spectacular truths you seek.


Meanwhile I'll be rubbing my "lamp" for 3 wishes.

In reply to by Uchtdorf

Giant Meteor Uchtdorf Mon, 06/25/2018 - 13:41 Permalink

"To recap, Greenspan flatly rejected the notion that financial excesses should be a monetary policy matter, and he was backed by Bernanke, wholeheartedly, and then by Yellen, who ever so slightly qualified but made no effort to reverse his approach."

I'll go ya one better. Their "notion" was to perpetuate financial excesses, through monetary policy. Remains to be seen how far the the reversal in the trend will be taken. It is certain however that more than a few 1's and 0's need some creative destruction. Shit has gotten out of hand.

In reply to by Uchtdorf

Son of Captain Nemo knotjammin2 Mon, 06/25/2018 - 13:17 Permalink

" That light at the end of the tunnel is a train."...

That's what I was referring too!... Rapture can either be pleasant and full of joy or full of pain. It's the choices you make leading up to it that are the heavy load you carry in this life and the next one!

Something tells me the "Most Wanted" pictures above that are the ONLY terrorists and not those who President G. "Snorter" scape goated instead... Will be saying something like  "how the fuck was I so stupid"?... Along with the rest of U.S. that took a pill in glazed eye amazement at how stupid we were in letting it get worse between the chain of ownership through each of them to this moment!!!


In reply to by knotjammin2

Mini-Me Mon, 06/25/2018 - 13:05 Permalink

Let the market determine interest rates.  Shut down the fed, allow insolvent banks to go under, default on the debt, and start over.

Dangerclose Mon, 06/25/2018 - 13:09 Permalink

Lowering rates has always been a "pushing on a string" analogy. Raising rates is "pulling on a string". Its about reaction time. You can figure it out from here.

Ocean22 Promethus Mon, 06/25/2018 - 15:56 Permalink

I Called this the second trump started to run. It’s was obvious he was going to win.  He knew he was going to win 35 years ago.  Collapse on the Donald’s watch, to be blamed on conservatives.  Russia and the BRICS to “save” the world with a new gold backed currency that will be global.  Devious indeed. 

In reply to by Promethus