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Sept. 21, 2019, 4:27 p.m. EDT

In a time of Trump, the Fed doesn’t know what’s going to happen next

Powell declares forward guidance dead

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By Rex Nutting, MarketWatch

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Powell said that the Fed can do a lot to support the economy, but it cannot do the one thing that is needed right now: Supply a “settled roadmap for international trade.” Only President Donald Trump can tell businesses what the rules are. Only Trump can create certainty.

Not knowing if or when the trade chaos will be resolved means that everyone’s forecasts become less valuable. Beyond the direct hit from higher tariffs, the trade war also means businesses don’t know what the rules will be next year, or next week. There’s a huge unknown in the equation that’s depressing investment.

What the Fed needs to convey now is not a roadmap to the future, but a credible promise that it will take the right steps, whatever happens.

All 17 members of the Federal Open Market Committee are optimistic that a recession can be avoided. About half of the committee think one more rate cut may be needed , but none of them are willing to go public with a forecast for more aggressive easing, even though each of them knows that further cuts might become necessary.

None of them have much confidence in those forecasts. There are too many unknowns to predict anything with confidence. What the Fed needs to convey now is not a roadmap to the future, but a credible promise that it will take the right steps, whatever happens.

Given past failures, that’s a hard message to sell. The one thing the Fed has going for it right now is humility. Powell knows that he does not control events; he can only react.

Good luck!

More on the Federal Reserve and the U.S. economy from MarketWatch:

Rex Nutting is a columnist and MarketWatch's international commentary editor, based in Washington. Follow him on Twitter @RexNutting.

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