Powell urges Fed economists to be flexible

Jerome Powell - will give several speeches, remarks today and tomorrow at the Centennial Conference of the Division of Research and Statistics in Washington, D.C.

"Intellectual rigor must be combined with flexibility and agility," Powell said in opening remarks at a conference celebrating the 100th anniversary of the Fed Board of Governors' Division of Research and Statistics. Jerome Powell said the central bank must be willing to think beyond the complex mathematical simulations it has traditionally used to forecast the economy. So he urged Fed economists to be flexible about forecasting methods.

"Even with the most sophisticated models, and even in relatively calm times, the economy often surprises us," Powell said. "But our economy is flexible and dynamic and sometimes subject to unpredictable shocks, such as a global financial crisis or a pandemic. At those times, forecasters have to think outside the models."

The Fed chairman did not comment on the outlook for monetary policy or the economy in his remarks. ...classic, how else to leave the markets tight... 😂

There was further talk the forecasts were a difficult exercise for the Fed in a post-pandemic economy.

Fed staff continued to label the outbreak of inflation as "transitory" for most of 2021 before accelerating further in 2022, reaching a peak annual rate of 7.1% in June of that year.

Following a series of bank failures in March 2023, the staff predicts a "mild recession " beginning later in the year, before dismissing that call a few months later. The economy grew at an annualized rate of 2.1% in the second quarter around its long-term trend, and then grew at a 4.9% rate in the third quarter.

Fed forecasters "do this work on the biggest stage and with the highest stakes because they know the economy surprises us very often," Powell said, adding that the job requires "large doses of courage and humility."

Officials will next meet Dec. 12-13 and will see fresh reports on retail sales, hiring and inflation before the meeting. Futures markets have almost no chance of a rate hike and predict that the Fed's current benchmark rate level - 5.25% to 5.5% - will mark the peak of the tightening cycle.

The $^GSPC-0.4% $^NDX-0.5% indices remain quiet today following this action. 😊