Pro Perspectives 2/5/24






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February 05, 2024

The Fed Chair (Jay Powell) appeared last night in a sit down interview on 60 Minutes.

This type of mainstream media interview/Q&A session with the Fed Chair has historically been rare, though less rare in the post Global Financial Crisis era. The Fed Chair tends to talk economics and policy with economic and policy practitioners.  These types of Q&A’s are typically done in Congressional hearings, following Fed meetings, or at select economic conferences.

With that, these 60 Minutes interviews have clearly come at times, over the past 15 years, when the Fed has the desire to speak directly to the broader public.

Last night’s sit down with 60 Minutes was Powell’s fourth, in his five years as Fed Chair.  His predecessor, Ben Bernanke, also used the 60 Minutes platform to speak to the American people a couple of times.

What was the common theme in each of these interviews?

A crisis of confidence, or (at best) the vulnerability of confidence.

For Bernanke, back in 2009 and 2010, he was directing the Fed through the storm of the financial crisis, and he and the Fed were being destroyed in the media.  And that media tone was opening the door for global leaders to take shots at the Fed.

The Fed was trying to restore confidence, and it wasn’t going well.  So, Bernanke took to 60 minutes to speak directly to the people – to set the record straight.  He shot down the media criticism and said he was seeing signs of “green shoots” in the economy.  This first Bernanke interview (in March 2009) set the bottom in the stock market — and it turned the tide in global sentiment.

In late 2010, the Bernanke interview followed a bad jobs report that left confidence vulnerable, and left stocks vulnerable to undoing the progress of the previous year.  Bernanke’s attempt to assuage fears led to a 10% break higher in stocks, to new post-Lehman highs.

For Powell, his first sit down with 60 Minutes was in March of 2019.  We had just ended the week with a 4.4% plunge in Chinese stocks.  Powell appeared on 60 Minutes that Sunday night.  It was a response to the growing risks of a confidence shock (given the December 2018 stock market decline, Brexit drama and China/U.S. trade uncertainty).

It was an opportunity to tell the public that the economy is doing well, despite the media’s doom and gloom stories.  Stocks bounced and rallied 9% over the next month and half and went on to new record highs.

In May of 2020, Powell made another 60 Minutes appearance.

It came on the back of a very soft CPI number, which created chatter about negative interest rates and a deflationary spiral (this, despite the massive policy response to the lockdowns just months earlier).

Stocks went south.  Powell emerged.  By Monday morning, stocks were popping, continuing the sharp recovery (17% higher in just three weeks).

Powell appeared again, for a 60 Minutes sit down, in April of 2021.  Stocks had just finished the prior week on record highs (unlike prior 60 Minute appearances).

But a risk to confidence was lurking.  The threat of an inflation shock was building.  Ten-year Treasury yields had nearly doubled on the year, back to pre-pandemic levels (of around 1.7%).  CPI data was on the calendar for the coming week, and expectations were for another hot number.

The Fed’s concern at that time?  A stall in the momentum of the fragile economic recovery.

So, in that interview, Jay Powell assured the public that the Fed would not budge on its ultra-stimulative policy, until the recovery was “complete.”

The 60 Minutes effect worked, again.  Stocks went up.  Yields went down.  And to cement confidence that the Fed would keep the pedal-to-the-metal on the economic recovery, they introduced the word “transitory,” when describing inflation, later that month.

Now, Powell was back in the seat again last night for another interview (actually record last Thursday).

He had just finished the recent Fed meeting, where he implied they had the luxury of being patient with rates at these currently high and restrictive levels, because the economy is strong, the labor market is strong, and inflation is going their direction.

What’s the concern this time?  If the history of these interviews is our guide, it’s the threat of waning confidence.  In this case, waning confidence would mean maybe the Fed doesn’t have the luxury of being patient.

With that, the 60 Minutes interviewer told him he had “disappointed a lot of people on Wednesday.”