The Only Economic Certainty is Uncertainty

For anyone doubting economists make meteorologists look like the Oracle at Delphi, Federal Reserve Board Chairman Jerome Powell’s press conference earlier this month offered definitive proof.

Speaking after the central bank’s interest rate-setting Federal Open Market Committee meeting voted to keep rates steady, Powell said with the new administration’s policy initiatives “uncertainty around the changes and their effects on the economic outlook is high.” And that uncertainty is the only real context for thinking about where the economy is headed.

Powell mentioned “uncertainty” more than a dozen times in both his prepared remarks and answers to reporters’ questions. While most eyes and ears were focused on the decision not to cut interest rates, the cautionary tone of the FOMC release and Powell’s presser were the real story.

Almost from the beginning, the theme of uncertainty was evident in Powell’s remarks.

“Surveys of households and businesses point to heightened uncertainty about the economic outlook,” he said.

Later on in response to a reporter’s question, Powell reiterated that uncertain feeling and what it means for predicting the economic future.

“Forecasting is very, very hard, and in the current situation, I just think it’s uncertainty is remarkably high,” he said.

From that context, it is easy to understand Powell’s repeated assertions that the Fed has time to figure things out.

“We do not need to be in a hurry to adjust our policy stance, and we are well-positioned to wait for greater clarity,” he said.

Translating from the original Fedspeak, Powell is saying they just don’t know what is going to happen. That’s not necessarily a bad thing. And it’s not the fault of Powell and all the economists in the Fed’s Marriner Eccles Building headquarters.

Unlike their compatriots in the weather forecasting business, economic forecasters don’t have precise scientific tools at their disposal, and economics doesn’t follow the laws of nature. That makes economists a bit more cautious in their prognostications – not quite hedging their bets exactly, but close enough to not really matter.

In Powell’s case, one doesn’t have to read between the lines to see he is coming as close to admitting they don’t know as is possible in a room full of reporters and cameras. Admitting the uncertain path of U.S. policy on several fronts, combined with the general uncertainties that already exist make it even more than usually difficult to navigate the economic waters ahead should make consumers and corporate leaders feel a little more at ease.

In a counterintuitive way, knowing the nation’s central bankers are still trying to figure out how present policies will affect future finances gives everybody a chance to take a breath and, like the Open Market Committee, wait for signs of greater clarity.

While that may mean holding back expansion plans or scaling back production estimates, it doesn’t mean the economic future is bleak. It does mean nothing is certain, including a recession.