Fed Chairman Jerome Powell in Jackson Hole

Jerome Powell laid out a doctrine of basing monetary policy as much on how the economy performs in reality as on the prescriptions of academic models as his Federal Reserve tries to extend a nearly decade-long expansion.

As reported by Bloomberg, in his first speech as Fed chief at an annual conference in Jackson Hole, Wyo., Powell defended his gradualist approach and, in the process, hardened expectations for a September interest-rate increase. In addition, he stressed that estimates of how the economy works — like those followed by Ph.D. economists on the Fed staff — were at best “hazy” navigational guides.

As a result, they often need to be tested by close observation of real economic data. The approach means that because policy makers often operate amid uncertainty they need to feel their way rather than rush to tighten because of what models say. The Fed’s job is set to become more complicated as its benchmark rate turns restrictive and the expansion ages.

“What I do see here is an affirmation of the Powell Doctrine: We’ve got a framework of the way the world works, we have these estimates, but they are subject to imprecision,” said Michael Gapen, chief U.S. economist at Barclays Plc in New York. “He is going to talk a little plainer, acknowledge uncertainty, and fashion a policy around that.”

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