Powell played it safe in Jackson Hole. I imagine he’d have preferred to sit this one out. As such, his presentation was too heavy on rationalization and justification. The FOMC is trapped in Greenspan-style “baby steps,” and it is curious that the Fed Chairman would choose to praise Alan Greenspan for his nineties policy approach:
“Under Chairman Greenspan’s leadership, the committee converged on a risk-management strategy that can be distilled into a simple request: ‘Let’s wait one more meeting; if there are clearer signs of inflation, we will commence tightening.’ Meeting after meeting, the committee held off on rate increases while believing that signs of rising inflation would soon appear. And meeting after meeting, inflation gradually declined.”
If the Greenspan Fed had in fact adopted a “risk management strategy,” it was a failed attempt. It’s too easy these days to disregard the highly disruptive boom and bust cycles that have been prominent in U.S. and global markets (and economies) over recent decades. And here we are today, the Federal Reserve still accommodating Bubble Dynamics because of its failure to respond to financial developments and contain excess back in the nineties.
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