I’m of the long standing view that Fed chairs have one prime responsibility above all others: Keeping confidence[1] up, and if it requires to sweet talk problems then that’s what it takes. The often classic quote by Ben Bernanke of “subprime is contained[2]” right before it blew up in everybody’s face being a prime example. Is the Fed that blind to reality or just on an elaborate marketing mission to ensure that nobody panics and sells stocks? I leave that judgment to the reader.
But I can see differing messaging coming out the Fed when people are in office and when not.
Take corporate debt for example.
Here’s Jay Powell in May of this year sweeting talking and dismissing any concerns[3]:
“Business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm to households and businesses should conditions deteriorate. Moreover, banks and other financial institutions have sizable loss-absorbing buffers,” he said. “The growth in business debt does not rely on short-term funding, and overall funding risk in the financial system is moderate.”
Sweet, no worries then. Odd then that Janet Yellen, no longer in office, feels free to say in essence the exact opposite[4]:
“I have expressed concerns about leveraged lending,” Yellen said during a keynote discussion that was closed to the press. “I do think non-financial corporations have run up, really, quite a lot of debt.”
“What I would worry about is if the economy encounters a downturn, we could see a good deal of corporate distress. If corporations are in distress, they fire workers and cut back on investment spending. And I think that’s something that...