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In politics, the vibes are everything. They cost Biden’s successor the election and helped Trump throw the Democrats out of power. But as the “vibecession” taught us, we will complain about prices and jobs while spending big and going to work.
Fed Chair Jerome Powell demonstrated this week that the political lesson of the vibecession isn’t to shove economic data into people’s faces and expect them to change their minds.
But the takeaway also isn’t to downplay solid indicators just to placate a negative mood. There’s a way to acknowledge public perception — and even validate it — while also waiting on more objective metrics to tell a more complete story. Something to keep in mind as we get March’s reading of the Consumer Confidence index on Tuesday.
Your gripes are real, Powell seemed to say, but in the new context of an economic slowdown and tariff inflation, where fear of the unknown is driving panic, they can also be a distraction.
“The relationship between survey data and actual economic activity hasn’t been very tight,” Powell said at the Fed’s press conference earlier this week. “There have been plenty of times where people are saying very downbeat things about the economy and then going out and buying a new car. But we don’t know that that will be the case here.”
Powell reassured the market the economic picture is sound, even as he left room to acknowledge that anxiety might be the appropriate response. And, further, that the sentiment may turn into something more sinister at a moment’s notice, given the nature of data lags.
Central bankers do care about the soft data of consumer sentiment surveys and business testimonials and monitor them closely. We’ve written about how important expectations and sentiment are in this very column many times — including this week. But their role is a yellow light and not a red one.
“We are obviously aware of the softening sentiment data and high uncertainty,” Powell said. After all, expectations about inflation can be self-fulfilling. Trying to reassure Americans that prices will remain stable is core to the Fed’s mission. Managing the vibes is Powell’s job.
But the central bank is mostly waiting for signs of weakness to migrate from the surveys and into the hard data of prices and jobs. And Powell emphasized the Fed can afford to wait.
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