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Why the markets need to give Jerome Powell a break

Federal Reserve Chairman Jerome Powell has been the subject of President Trump’s ire, and the stock market’s too, since cutting rates at the Fed’s July meeting. While many were happy about the 25 basis point cut announced last week, his comments afterwards about the uncertainty of future cuts spooked some traders and led to more confusion.

Former Fed Vice Chair Alan Blinder told Yahoo Finance that the market should take a breath and realize what’s really going on.

“I’m a big believer in transparency,” the Princeton University economics and public affairs professor told “The First Trade.” “I was writing about this 25 years ago and when I was on the Fed arguing with [former Fed chair] Alan Greenspan that we should be more open and transparent.”

But “if you don’t know what’s going to unfold in the future, you can’t be transparent about it,” Blinder said.

That may be the issue gripping the Fed right now. Powell has said he favors as much transparency as possible, and has become the first Fed chief to conduct news conferences after every FOMC meeting.

Federal Reserve Chairman Jerome Powell walks to the podium during a news conference following a two-day Federal Open Market Committee meeting in Washington, Wednesday, July 31, 2019. (AP Photo/Manuel Balce Ceneta)

“The case for enhanced transparency is not just about being accountable,” Powell told a conference in 2018. “It is about providing credible information that can help restore and sustain public confidence in the financial system.”

But there’s a downside to being so open and transparent in a changing economic environment, Blinder said.

“You’re likely to be misinterpreted, and that’s what happened to Jay Powell and his colleagues after the last FOMC,” he said.

“They don’t have a firm view of where monetary policy is going over the next year or so, and therefore there’s nothing concrete to communicate. And anything they say is likely to be over-interpreted by people in the markets. That’s what people in markets do.”

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