DOW/ECONOMY/FEDERAL RESERVE: “The stock market’s recent selloff crystallizes four important challenges facing the Federal Reserve’s new chairman, Jerome Powell, who takes charge Monday [2-5-18].
Low inflation and steady job gains allowed his predecessor, Janet Yellen, to raise interest rates slowly, enabling the economy to heal and the markets to romp ahead. Mr. Powell takes over amid signs this blissful combination might no longer be possible.
Fed officials raised their benchmark short-term interest rate last year to a range between 1.25% and 1.5% and penciled in three quarter-percentage point increases this year. Whether Mr. Powell and his colleagues stick to this path largely depends on the four central questions that loom ahead…
Mr. Powell is expected to provide continuity with the Yellen era, in part because he consistently voted to support her policy moves and never voiced public disagreement…
Despite the recent pullback, stocks are up around 3% this year after advancing 25% last year. Adjusted for inflation, the price-to-earnings ratio is nearing all-time highs seen during the 2000 tech-stock bubble.
Home prices, also adjusted for inflation, are back to levels last seen in 2004, when bubbles began inflating. The Fed has strengthened bank regulation, but its tools to contain wider damage to the economy from bubbles haven’t been tested.”
-Nick Timiraos, “Challenges on Inflation Policy, Tax Cut Loom as Powell Era Begins at Fed,” The Wall Street Journal online, Feb. 4, 2018 05:38pm