Crane Operator

Metaphorically, the Federal Reserve is like a crane operator for the American economy. They are trying to deliver the economy to a sweet spot that is neither too hot nor too cool. The boom of the crane helps move an object horizontally while the hook causes vertical movement. Imagine one of the Fed’s dual mandates (full employment) as the boom and the other (price stability) as the hook.

Based on the most recent press release and press conference from the central bank’s Federal Open Market Committee Chair, Jerome Powell, America’s economy could be currently in a place which leaves little room for further action from the central bank. At the close of this week’s meeting, the bank left the overnight interest rate unchanged, describing job gains as being “low” and inflation as “somewhat elevated.”

Higher than desired inflation (their target is 2.0%, and price trends remain greater than this by virtually every measure) would likely keep the Federal Reserve from lowering rates if unemployment starts to creep up. And if inflation rises further, they risk hurting the already inert hiring situation by increasing rates.

In crane terms, inflation is one side of the danger zone and jobs are the other. If the operator raises the hook to much (i.e., keeps policy too tight for too long), the hook gets too close to the boom, causing the crane to become “two blocked,” a situation which risks the tension of the line growing too tight and ultimately snapping. But if he drops it too fast (cuts too quickly) the load may swing and inflation might flare back up as too much slack is given. The current operator is running the crane slowly, trying to deliver an economic circumstance that can be sustained and steady. Atlas expects more of the same during the remainder of Jerome Powell’s time in the crane’s seat.