Is it time to retire the tired analogy of comparing the economy to a car? This clichéd metaphor has been used countless times to make bold statements about economic fluctuations, but it may have contributed to the odd combination of statements and forecasts from the Federal Reserve.
Despite a unanimous agreement among voting members, the Fed chose not to raise rates today. However, they expressed overwhelming support for future rate hikes. We’ve highlighted their positions below as doodles in red (with the arrow representing the current rates).
Nonetheless, the decision not to raise rates immediately puzzled many commenters, economists, and journalists. Why not proceed with rate hikes if it’s necessary? In response to a direct question from the WSJ’s Nick Timiraos, Fed Chair Powell resorted to a metaphor that resonates not only with the analytical economists at the Fed, but also with folksy regional-bank officials and journalists who prefer relatable explanations. The metaphor of a car.
Powell stated, “The question of speed is a separate question from that of level. Last year, speed was crucial, but as we approach our destination, it’s common sense to slow down a little.” However, the validity of this comparison only holds if the Metaphorical Economy Car isn’t headed towards an impending economic disaster. Perhaps Powell’s statement expresses confidence that such a disaster is not on the horizon? Maybe?
After the initial statement, stock prices fell by as much as 0.7%, but they have since slightly recovered in late trading.
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