Karen Dynan, an economics professor at Harvard University and frequent attendee of the conference, said she wasn’t surprised that central bankers didn’t want to wade into conversations about politics. Still, she said the conference set an example of how big-picture economic issues should be approached.
“This year it feels particularly meaningful that we have a bunch of papers that are grounded in good economics done by people who are prominent experts,” Dynan said. “These are not problems that can be solved by thinking about one’s intuition or talking to just a circle of people around you — you really need this sort of expertise.”
A New Framework
One issue that received less attention was the new framework Powell unveiled in his speech.
The document, which will guide policymakers as they pursue their inflation and employment goals, is the culmination of a months-long review of the previous one, implemented in 2020. The new strategy removes some of the language that more narrowly focused on the pre-pandemic challenge of persistently low inflation.
It’s a return to basics and sets the Fed up to more clearly focus on its mandates of maximum employment and stable prices, said Carolin Pflueger, associate professor at the University of Chicago Harris School of Public Policy.
In his remarks, Powell “emphasized that his job is inflation and unemployment, and that can only be achieved within an independent Fed,” Pflueger said. “I think people appreciate that.”
Global Impact
That appreciation became apparent when Powell was greeted Friday morning with a standing ovation from economists and policymakers from around the world — and not for the first time this year.
For them Fed independence is not only a matter of principle but also practicality, since decisions taken in Washington inevitably come with consequences that spread far beyond.
The euro strengthened by 1% against the dollar following Powell’s remarks, adding downside risks to euro-area inflation that’s already seen falling to 1.6% next year.
“If a cut does come and reflects slower US growth, that probably means slower growth for them given the size of the US,” Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and the former chief economist at the International Monetary Fund, said of the euro area and other economies.
