Powell's Long Journey

The market's early applause this morning suggest an investor base that has finally grown comfortable with Jerome Powell. When he took the job in February 2018, Powell was something of an unknown quantity, a non-economist at the helm of the world's most important central bank. Powell's first day on the job -- Monday, Feb, 5, 2018 -- was a rough one for markets, with the S&P 500 tumbling 4% and the Dow Jones Industrial Average suffering its worst-ever point drop at the time, down 1,175 points, or 4.6%. 

I remember the day well, because it was also the first issue of this newsletter. ("We Feel Your Pain, Chairman Powell" went our debut subject line.) 

We've all come a long way since. Here's how my colleague Randall Forsyth summarized investors' main main worry about Powell back then: 

Whether Powell will be as sensitive to the stock market as his three most recent predecessors remains to be seen. After the October 1987 crash, what became known as the “Greenspan put” was invoked after Alan Greenspan, then the Fed chairman, eased policy aggressively in reaction to that short but sharp shock. Bernanke and Yellen also showed deference to episodes of stock market weakness that investors could have grown confident (or complacent) that central banks have their backs.

It remains to be seen how Powell will react to a stock swoon.

Unfortunately, we eventually learned. No one foresaw a pandemic and unprecedented market selloff that would take place just two years later. Powell was arguably the man most responsible for keeping the U.S. (even the world's) economy afloat during those critical months in the spring of 2020. And while some disagree with his more recent policies, it's worth remembering his composure during the pandemic.  

On March 26, 2020, Powell took the rather unusual step of addressing the audience of NBC's Today Show to emphasize the Fed's ability to manage the pandemic's economic fallout. "We're not going to run out of ammunition," he said then. For that day's newsletter, I pulled this quote from Powell:

There's nothing fundamentally wrong with our economy, quite the contrary. The economy performed very well right through February ... So we start in a very strong position ... This is a situation where people are being asked to step back from economy activity ... So, in principle, if we get the virus spread under control fairly quickly, then economic activity can resume. And we want to make that rebound as vigorous as possible.

Sadly, we didn't get the virus under control quickly. But Powell offered the view of a man who was in control. It turns out that interview came three days after stocks hit their pandemic low. The S&P 500 has soared 89% since.