Recalling Short Speech That Jolted Markets:  Given the typically high level of interest in the comments from Powell at the symposium and central bank heads playing it according to circumstances, said El-Erian in a Financial Times op-ed published on Monday.

They signal imminent monetary policy steps, delve into long-term monetary policy issues or limit themselves to a narrow economic question with no immediate policy implications, he added.

Powell takes the podium in a moment of “great economic fluidity with fascinating policy challenges and trade-offs,”  the economist said.

In 2022, Powell delivered a “shockingly short” speech that was under nine minutes, El-Erian noted. As he said bringing down inflation would also bring some pain to households and businesses and that “failure to restore price stability would mean far greater pain,” the stock and bond markets nose-dived, the economist said.

“But with robust U.S. economic growth and unemployment hovering merely a hair away from its historic low, what actually transpired was akin to a ‘waiting for Godot’ scenario — a pain expectation repeatedly alluded to but not realized at the aggregate level.”

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The second option of taking a long-term approach is also on the table, said El-Erian, especially as Powell mischaracterized inflation as transitory and the Fed is also blamed for belated policy response in the current tightening cycle.

The economist also noted ongoing debates over whether the 2% inflation target set three years back is appropriate now.

El-Erian also discussed the possibility of the Fed following in the footsteps of the Bank of England in instituting an external evaluation of its forecasting errors.

Powell could also weigh in on the third strategy of shelving both immediate and long-term policy issues, focusing instead on a specific economic query with few immediate implications, the economist said.

“It may be the most cautious course for someone who has had communications challenges,” he said

“What is less clear, however, is what he will opt for. If I were advising him, I would suggest the third strategy at this economic, political, and institutional juncture,” El-Erian said.

Any hint from Powell that a pause is in the offing could help the return of risk-on mood in the markets.

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Photo via Brookings Institution on Flickr