Being the chairman of the Federal Reserve is to walk a tightrope. Say too much or the wrong thing, and you can upset investment markets to the tune of trillions of dollars. Don't say enough, and rumor and innuendo rule the day.
Jerome Powell steps out onto that tightrope Wednesday afternoon in the week ahead when he holds his first press conference as chairman of the Federal Reserve.
He has been greeted by strengthening economic data, an incredibly tight job market, a newly volatile stock market, rising market interest rates and inflation jitters. He also has been dealt an erratic economic policy from the Trump Administration (cutting taxes, boosting spending, steel tariffs, renegotiating NAFTA, immigration crackdown, re-writing the post-Great Recession financial system rules).
The Fed's Open Market Committee is widely expected to raise its target interest rate Wednesday after a two-day meeting. It probably will do it two more times this year. However, higher inflation could push the Fed to act more frequently and faster than currently predicted. Powell will want to reassure investors, especially bond investors, inflation remains reasonable and contained while not fueling fears of more aggressive Fed action.
Should he go soft on inflation, he risks an outbreak of accelerating rising prices, which would force the Fed to act faster than anticipated. If he makes a hard case for inflation, it risks spooking investors to sell, pushing bond market interest rates sharply up. Either misstep results in an investment environment of fast rising borrowing costs.
That's challenging enough for consumers, but is dangerous for corporate America. U.S. corporations have binged on IOUs. By 2022, $4 trillion of business borrowing is due according to S&P. Some of that will have to be refinanced, likely at higher rates.
A growing economy is the safety net for this tightrope act. And the Fed holds the ropes.
