Jerome Powell, chairman of the Federal Reserve, is switching up the central bank's playbook in 2019, trading a steady pattern of quarterly rate hikes for a more unpredictable approach.
Starting in the new year, bankers will consider rate changes at each meeting, rather than just quarterly, doubling the number of potential changes from four to eight — though Powell told reporters on Wednesday that he anticipates only two rate hikes in the coming year.
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He'll also begin holding press conferences after each meeting, breaking with the practice established by Ben Bernanke in 2010 of only speaking to reporters once a quarter.
The changes send a clear signal that the US central bank no longer sees itself on "autopilot" after its final policy-setting meeting for the year.
Speaking to reporters this week, Powell said holding regular press conferences will be a "positive development" as the Fed seeks to explain what they're thinking about rate hikes going forward. Adding, over time there "will be no a priori as to whether we move at a quarterly meeting or one of the meetings" when the central bank doesn't update its economic forecasts.
Wall Street is already showing signs of early jitters over the possibility of a market-moving announcement any time officials meet and broader disappointment that the Fed is stubbornly sticking with its intention of taking rates higher. Markets tumbled on Wednesday after Powell's press conference, at which he said, "We'll have the ability to move eight ti--," before correcting himself. "At different meetings, not eight times, but at eight different meetings."
Rather than sticking with its plan for a string of locked-in rate hikes next year, the Fed instead appears to be favoring a more flexible approach, signaling its intention to watch and see how the economy performs over time slowly before determining the future path of policy.
"What kind of year will 2019 be?" Powell rhetorically asked at the start of the press conference. "We know that the economy may not be as kind to our forecasts next year as it was this year. History attests that unforeseen events as the year unfolds may buffet the economy and call for more than a slight change from policy projections released today."
The Fed has already sent a dovish signal to investors by lowering its rate hike projections for next year in their so-called "dot plot." The central bank now appears to be eyeing at least two — less than previously expected.
"The Fed must tread more carefully as it contemplates further rate hikes," wrote Ellen Zentner, chief US economist for Morgan Stanley, in a note to clients. "Indeed, the downward revision to growth forecasts and the "dots" for 2019 reflects a committee that sees greater uncertainty around the path for policy next year."
In September, nine of the 16 policy makers forecast the Fed should raise rates three or more times next year, while seven officials estimated the economy would benefit from two hikes or less.
The US central bank has been trying to strike a balance between not moving too fast and risking shortening the economy's longest running expansion versus not moving too slowly and risking the economy overheating. But a shift toward "data dependence" means more guessing from investors going forward about just how fast the Fed plans to raise rates to keep the US economy from wobbling.
Richard Clarida, the Fed's vice chairman, underscored that message in a speech in November, saying policy makers make decisions "where the economy is" based on current data and stressed the importance of communicating clearly how new information may or may not change the Fed's course.
And already policymakers have begun discussing how best to communicate that shift to the public, according to minutes of the Fed's last meeting in November. There, some Fed officials suggested potentially changing their post-meeting statement to remove mention of "further gradual increases" and reflecting their plans to rely more greatly on fresh economic data.
"The word 'gradual' had come to mean a rate hike at every other FOMC policy meeting," wrote Kevin Logan, chief US economist at HSBC in a note to clients, referring to the Federal Reserve Open Market Committee. "Dropping the word 'gradual' at this juncture would suggest that the policymakers are giving themselves leeway to move more slowly if they so choose."
But for President Donald Trump — and jittery investors — all they really want to know is will the Fed take a pause in raising the federal funds rates, which controls the cost of mortgages, credit cards and other borrowing.
In recent months, the President has taken repeated aim at his Fed chairman, a former investment banker appointed last year by Trump himself. Trump, a close market-watcher who has staked his presidency on the state of the US economy, has accused Powell of trying to undercut him politically by slowing down the economy.
After the financial crisis erupted in 2008, the Fed kept rates at historically low levels to revive the ailing economy. It slowly began to raise them again in 2015 as the economy regained strength under Obama, and it has raised rates six times since Trump took office. Three of those increases have been under Powell.
But central bankers are now wrestling with tighter financial conditions — mainly reflecting a stock selloff — which has increased the odds of growth slowing next year.
So far, Powell has shrugged Wall Street's recent downturn, saying "a little volatility doesn't leave a mark."
The goal is to be holistic, he went on.
"We follow markets carefully but remember, from a macroeconomic standpoint, no one market is the single dominant indicator," he said.