With less than a week before a major interest rate decision by the Federal Reserve Federal Open Market Committee, the key architect in shaping the central bank’s policy to fight inflation was humiliated in Russia by pranksters posing as Ukrainian President Volodymyr Zelensky.
The comical video of Powell circulated in Russia and received wide coverage in state media, according to reports.
In a statement to Bloomberg, a Fed spokesperson confirmed Powell “participated in a conversation in January with someone who misrepresented himself as the Ukrainian president.” The Fed characterized the conversation as “friendly” and said no sensitive or confidential information was discussed.
The embarrassing episode is unlikely to influence the Fed’s decision on interest rates next week or alter the path of monetary policy, but it could raise questions about security at the Fed, and considering other recent blemishes, including the Fed’s notorious comments insisting that inflation was “transitory” when it wasn’t, the news is another black eye for the leadership.
The Fed’s decision next week to pause or follow through with another 25-bps rate hike isn’t going to be an easy one. On the one hand, inflation is still elevated. This was evident in GDP data released Thursday morning, with data showing core personal consumption expenditures in the first quarter up 4.9%. On the other hand, high interest rates caused problems in the U.S. banking sector, and with First Republic Bank (NYSE:FRC) tittering on the brink of FDIC receivership, clearly these issues haven’t fully gone away either.
Investors betting on the outcome of the Fed meeting expect the FOMC to pull the trigger on a 25-bps rate hike when they meet next week, and many believe Powell will signal that the Fed will end rate hikes in the near term.
Despite pushback from the Fed, some investors also believe the Fed will cut rates this year. Currently, Fed fund futures and swaps are pricing in at least one 25 bps cut before the end of 2023. One of Powell’s most difficult tasks next week will be maintaining the Fed’s credibility while acknowledging these shifting possibilities.
Against this backdrop, and with so much at stake, the last thing Powell needs or wants is to further undermine investor confidence in his leadership or the institution.