On the day Jerome Powell succeeded Janet Yellen as Federal Reserve Chairman, the Dow fell more than a thousand points, its largest point drop in history. In the past week, Powell spoke for the first time on on Capitol Hill, twice. Neither day was a good day for stocks.
Although the day-to-day movements of financial markets are hardly a reflection of the current state of the economy, its excessive volatility is indicative of the heightened uncertainty surrounding economic policy in 2018, and beyond. As the economy reaches its ninth year of economic expansion, stiff headwinds emerging on the horizon will present new challenges for Powell and the Federal Reserve.
In his Senate testimony, Powell acknowledged the job gains, lower unemployment, and sustained economic growth that has occurred under the stewardship of his processor, Janet Yellen. It was Yellen who began normalizing monetary policy following the historic quantitative easing of the Ben Bernanke era, and many in Congress were understandably concerned about the pace of interest rate hikes over the coming year. Indeed, Powell unexpectedly took a more hawkish tone and suggested that there could be as many as four hikes this year, saying "the things we don't want to have happen is to get behind the curve, have inflation move up and have to raise rates too quickly and cause a recession."