The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and Gramercy “We don’t guess, we don’t speculate and we don’t assume.” That is what Jay Powell asserted last month when asked whether Federal Reserve officials incorporated into their policy thinking the plans of incoming president Donald Trump. Investors and economists are trying to figure out whether this is still true amid the unsettling market volatility that followed last week’s Fed policy announcements.
Some, pointing to Powell’s mention of “a new phase”, argued that the Fed was positioning for what officials deemed the inflationary effects of the incoming administration’s inclination for higher tariffs, big tax cuts and significant labour force retrenchment due to the large-scale repatriation of illegal immigrants. Others attributed the hawkish shift to inflation dynamics that once again surprised and confounded the world’s most powerful central bank.