Fed chair walks tightrope of acting to ease inflation fight and articulating his position

Last week, it was the Federal Reserve’s Open Market Committee shaping monetary policy and investor expectations. It will be the Fed’s open mouth practices at work this week.

Federal Reserve Chairman Jerome Powell handled his common practice of making controlled public appearances after an interest rate decision by the central bank. He is due to talk again when he appears Tuesday at The Economic Club of Washington, D.C. It likely will be the first comments he’s made after Wednesday’s press conference following the Fed’s smallest rate hike in almost a year.

“The disinflationary process has started,” Powell stated then, using Fed-speak to describe inflation cooling somewhat from its 40-year high. The statement is far from a declaration of victory in its yearlong inflation fight, though. “We have more work to do,” he said during his opening statement to reporters after the rate hike decision.

Powell’s problem is that Wall Street isn’t convinced. The predominant view expressed by the bond futures market is that the Fed will raise rates by a quarter percent in March and then hold steady through late summer.

On Wednesday, Powell was vague with his rate increase forecasts. “We’re talking about a couple more rate hikes,” he said. But he was clear in contradicting the market odds of a couple of interest rate cuts late in the year: “I just don’t see us cutting rates this year.”

Tuesday’s lunchtime appearance before the powerful and plugged-in in Washington gives Powell the opportunity to massage his message after four days of market reaction. Stocks rallied after last week’s decision and comments. Conventional wisdom is that by slowing down its rate increases, the Fed is close to ending this cycle of higher borrowing costs.

The agency is explicitly tackling inflation with its monetary policy. It is implicitly fighting to restore its reputation. Two years ago, at an appearance at a different economic club, Powell acknowledged “some upward pressure on [consumer] prices.” But he downplayed any concern to the Economic Club of New York that “that will be neither large nor sustained.”

U.S. consumer inflation was 1.7% at the time. It would hit 9% a year and a half later.

While the Fed’s late and then aggressive effort to raise borrowing costs may be slowing, its work to repair its reputation is ongoing.

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