Once an Advocate of Higher Rates, Powell Now Looking Like a ‘Dove’

Is Federal Reserve Chair Jerome Powell becoming a dove?

Powell has historically leaned in favor of higher interest rates, according to a recent review by Deutsche Bank. However, he now could be spearheading the charge to lower rates faster than some of his Federal Reserve colleagues would advocate for, the analysis showed.

Record Shows Powell a Centrist Who Leans ‘Hawkish’

In terms of economics, “doves” tend to favor lower interest rates, while “hawks” generally press for interest rates to be higher. 

From 2012 to 2013 and 2016 through 2018, then-Federal Reserve Gov. Powell mostly stuck to the center of Federal Open Market Committee (FOMC) member projections, Deutsche Bank said. When he did deviate, Powell tended to vote for higher rates.

“Some of this skew appears to be motivated by Powell’s economic forecasts, which tended to be more optimistic on growth and the labor market and near the median on inflation,” said the note authored by a team led by economists Matthew Luzzetti and Amy Yang.

Recent Comments Skew in Dovish Direction

While current voting records are anonymous—including the projections on the “dot plot”—the Deutsche Bank review sought to match the current dots with FOMC members based on their public comments.

According to their estimation, Powell’s votes line up with the bottom tier of interest rate projections. His current views are similar to Chicago Fed President Austan Goolsbee, San Francisco Fed President Mary Daly, and other “doves” who have said weaker labor conditions may require the Fed to act more quickly to lower interest rates.

“We put substantial weight on Powell’s recent comments, which clearly skew in a dovish direction relative to many of his colleagues,” the analysis said. 

Powell’s interest rate projections were about half a percentage point lower than the “hawks,” including Federal Reserve Gov. Michelle Bowman and Cleveland Fed President Loretta Mester.

Shift Could Set Powell Up to Lead on Rate Cuts

The review noted when Powell was pressing for higher rates, it was in different economic conditions, before the pandemic and amidst strong growth. Powell’s position change showed he can stay ahead of the curve, the note said. 

“Powell’s flexibility to be above the median during a hiking cycle and below the median as the Fed prepares to cut rates likely reflects him taking leadership to lead the Committee toward the appropriate direction of travel,” the note said. 

The review comes ahead of the FOMC meeting at the end of July, where officials are expected to keep interest rates unchanged, though some economists have pressed for a rate cut. The Fed is widely expected to start cutting its benchmark rate, which is at a 23-year high, before the end of the year as data shows economic activity slowing and inflation moderating.