Imagine you were on a ship crossing the ocean. The captain said he hoped to reach New York, but didn’t have any great confidence as to whether the ship would achieve that destination. In contrast, he told you exactly how he planned to adjust the steering wheel over the next 3 hours. How would you feel?

Personally, I’d rather the captain express a high level of confidence as to the destination, but also exhibit a willingness to change the steering wheel setting as necessary to offset wind and waves.

Over the past year, I’ve often been critical of the Fed. The so-called “flexible average inflation target” has ended up creating more confusion than clarity. The exact meaning of the 2% inflation target is now unclear. In 2021, the Fed provided forward guidance on interest rates and QE, leading to a policy that was too expansionary for the conditions of the economy. They should have provided much more clarity about where they wanted the future price level to be, and much more willingness to make interest rate targets and QE be “data dependent”.

Today, I’d like to praise Jay Powell for his comments at yesterday’s press conference. He was forceful in his statements that the Fed would do whatever it takes to get inflation back to 2%. (Of course I’d still prefer NGDP level targeting.)  More importantly, he suggested that future interest rate movements would be data dependent. I suspect this is why the markets responded positively to the press conference.

The media often focuses on whether Fed statements are hawkish or dovish. I focus more on whether they are effective in achieving the Fed’s goals and reducing policy uncertainty.  By that criterion, yesterday was a modest step forward.

PS.  And no, we did not have a recession in the first six months of 2022.