Fed Chair "Words" Matter

During this week's press conference, Fed Chair Powell inserted himself and the Fed into the discussion about payroll job measurement. Powell stated that there is a "systemic overcount" of payrolls, estimating it to be around 60,000 per month, according to Fed staff. It is uncertain why Powell questioned the accuracy of payroll data since the Fed's "employment mandate" focuses on the unemployment rate, which is measured by the household employment survey rather than the payroll survey. Nonetheless, the "words" of the Fed hold significance, and Powell has effectively placed an asterisk on payroll job growth.

In the mid-1990s, former Federal Reserve Chairman Alan Greenspan informed Congress that the consumer price index was overstated by about 100 basis points. Greenspan's statement triggered considerable outrage in Congress, as demonstrated by Speaker of the House Newt Gingrich's remarks:

“We have a small group of bureaucrats who, according to all professional economists, have made a mistake in their calculations. If they can't correct it within the next 30 days or so, we will eliminate their positions…” and transfer the responsibility to the Federal Reserve or the Treasury, …”and instruct them to correct it.”

The motivation behind Fed Chair Powell's remarks on the accuracy of payroll data is uncertain. Greenspan's comments previously led to multiple congressional hearings and the establishment of an advisory commission to examine the CPI and suggest modifications. Currently, Congress is preoccupied with other urgent matters, which have prevented a similar reaction.

However, Powell's remarks provide the upcoming Fed chair with some

flexibility on Fed policy, as the next Fed Chair could merely repeat that job growth is systematically overstated, and that provides "cover" to continue with an easy policy.