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By Sara Haire
     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell went back in time to
explain what the Fed has learned from previous policy mistakes when he delivered
his speech at the Kansas City Fed Annual Symposium in Jackson Hole, Wyoming on
Friday, reiterating that gradual rate increases are still appropriate and noting
that inflation is not showing clear signs of an acceleration over the 2%
threshold. 
     Here are 5 key takeaways from his speech: 
- Once again Powell reiterated how strong the economy is currently and that
while inflation has moved up near the 2% objective, there "does not seem to be
an elevated risk of overheating." Powell addressed the issue of staying in
goldilocks scenario and trying to find where the mythical neutral rate is so as
to not cripple the economy but also does not let it run too hot. However, Powell
also expounded on the fact that estimates for longer-run levels have evolved
over time and so trying to find the sweet spot is inherently easier said than
done.
- The economy being as strong as it is suggests that the path they are on is
currently the right one and if it continues this way, "further gradual increases
in the target range for the federal funds rate will likely be appropriate." He
explained that inflation has moved up near their 2% objective and they have not
seen any "clear sign of an acceleration above 2%." However, no sign of
overheating or accelerating inflation does not suggest that they will be
altering their policy path any time soon given that the Fed will now be paying
closer attention to all incoming data, including labor market data, in order to
inform their decision instead of being tethered to inflation when setting
policy.
- Federal Reserve Chair Powell gave credence to a recent paper published by the
Fed staff that showed "that no single, simple approach to monetary policy is
likely to be appropriate across a broad range of plausible scenarios." Powell
reiterated that point and explained that in order to make sure monetary policy
is doing what it should do, the Fed does not stick to one set rule to dictate
their movements, especially given the uncertainty over longer-run estimates of
the neutral interest rate and the unemployment rate.
- According to Powell, in navigating appropriate policy, there have been errors
made previously that the Fed now recognizes and is ready to combat if necessary.
One of the mistakes that the FOMC had made previously was that they "had placed
too much emphasis on its imprecise estimates of u* and too little emphasis on
evidence of rising inflation expectations," Powell said. In order to avoid this,
Powell explained that anchoring inflation expectations is one of the "vital
preconditions" for reaching all other monetary policy goals. If inflation
expectations were to become unanchored, Powell said he was "confident that the
FOMC would resolutely "do whatever it takes" should inflation expectations drift
materially up or down or should crisis again threaten." This suggests the Fed
will not cautiously wait and see, but will use the necessary tools to fix the
problem before it becomes a bigger problem.
- In addition to acknowledging that the FOMC is not following a set rule in
terms of policy, Powell wanted to emphasize that the Fed made mistakes
previously in terms of paying too much attention to imprecise data and too
little to other incoming data. He did emphasize that the policy path must take
into account more than just price stability and maximum employment and
effective, stable interest rates. Powell explained that estimates of longer-run
expectations for the unemployment rate and inflation may not be the best
indicators to look at given the high levels of uncertainty. He also explained
that looking outside inflation is going to be key given that in "the past two
recessions, destabilizing excesses appeared mainly in financial markets rather
than in inflation. Thus, risk management suggests looking beyond inflation for
signs of excesses." 
--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com
[TOPICS: MAUDR$,MAUDS$,MMUFE$,M$U$$$]

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