In this May 22 2020 article, NYU Stern Prof. Nouriel Roubini (BA Bocconi University 1982, PhD Harvard 1988) proclaimed:

In other words, you’re saying that because of structural weaknesses in the economy, even modest inflation would be crisis-inducing because key economic actors are dependent on near-zero interest rates?

For the last decade, debt-to-GDP ratios in the U.S. and globally have been rising. And debts were rising for corporations and households as well. But we survived this, because, while debt ratios were high, debt-servicing ratios were low, since we had zero percent policy rates and long rates close to zero — or, in Europe and Japan, negative. But the second the Fed started to hike rates, there was panic.

In December 2018, Jay Powell said, “You know what. I’m at 2.5 percent. I’m going to go to 3.25. And I’m going to continue running down my balance sheet.” And the market totally crashed. And then, literally on January 2, 2019, Powell comes back and says, “Sorry, I was kidding. I’m not going to do quantitative tightening. I’m not going to raise rates.” So the economy couldn’t take a Fed funds rate of 2.5 percent. In the strongest economy in the world. There is so much debt, if long-term rates go from zero to 3 percent, the economy is going to crash.

Roubini's ostensibly paraphrasing Chair Jerome Powell informally. Is Roubini correct? What exactly did Powell communicate in Dec 2018 and Jan 2 2019?


1 Answer 1


I'm working off Henry's link here, so all props to him. All quotes are Powell's.

December 18

Verifying "I’m at 2.5 percent. I’m going to go to 3.25."

(source, page 21)

[W]e’re at the lower end of the range of neutral. We’ve arrived effectively at the bottomend of that range. And, you know, there are implications of that. For that, as I mentioned, going forward, there’s real uncertainty about the path—the pace, rather, and the destination for further rate increases.

Over-simplified Powell said more something like "Eventually the rate will go up, we don't know yet when though."

Verifying "And I’m going to continue running down my balance sheet"

Page 6:

So we thought carefully about [over-managing runoff policy], on how to normalize policy, and came to the view that we would effectively have the balance sheet runoff on automatic pilot and use monetary policy, rate policy, to adjust to incoming data. And I think that has been a good decision. I think that the runoff of the balance sheet has been smooth and has served its purpose. And I don’t see us changing that.


January 19

"Sorry, I was kidding"

I'm not going to verify that, that's pure polemics.

Verifying "I’m not going to do quantitative tightening. I’m not going to raise rates."

(source, page 2)

Today the FOMC decided that the cumulative effects of those developments over the last several months warrant a patient, wait-and-see approach regarding future policy changes. In particular, our statement today says, “In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.



By turning "rates will rise eventually" into "rates will rise soon", Roubini makes consistent behavior look contradictory.

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