Fed Chair Jerome Powell addressed the National Association of Business Economists conference in Nashville last week, and we — despite not being trained economists — were on hand.  In this week’s post, we provide a brief summary of our impressions and a few thoughts for family business directors.

• Powell described the economy as being in “solid shape.” In prepared remarks and a subsequent moderated session, Powell noted that inflation has cooled over the past year or so, trending toward the Fed’s target rate of 2.0%.  At the same time, labor markets are less tight, with unemployment rates gravitating toward what is more likely to be a “natural” rate (likely somewhere between 4% and 5%).
• It was also clear from Powell’s comments that the “dual mandate” of price stability and full employment is the Fed’s north star. When excessive inflation is a more immediate prospect than underemployment, the Fed will adopt a restrictive posture; when underemployment appears to be the more imminent threat, monetary policy will be more accommodating.
• Since global financial markets hang on the Fed Chair’s every word, Mr. Powell is a master of speaking carefully. This results in a fair amount of repetition during a 45-minute event.  Reading a bit between the lines, however, Powell seemed quite pleased with the Fed’s efforts to engineer the elusive “soft landing.”
• Fed Chairs are not really in the business of making grandiose pronouncements about structural shifts in the economy and what the world will be like in 20 years. While we suspect that plenty of such “deep” thinking likely goes on in the corridors of the Fed, Powell’s public ruminations at the Nashville event were much more pedestrian: we watch these two dials, and if they appear to be out of balance, we adjust rates accordingly.

Should family business directors care about what the Fed does?  Of course.  Fed actions directly impact borrowing costs, and indirectly, Fed decisions constitute a barometer of sorts for the economy.  Family business directors are inundated with a bewildering array of economic statistics; the Fed looks at those same measures and (effectively) assigns weight to each of them to develop a composite view of the health of the economy and likely near-term pressures.  Family business directors should leverage that work for their own purposes.

Should family business directors worry about what the Fed does?  No.  Unlike the Fed Chair, family business directors really should be taking the “long view” of their family business and the economic and industry trends that will likely shape it in the coming years.  Whether the next Fed rate cut is 25 or 50 basis points shouldn’t be a determining factor for your family business’s multi-year strategy.  The Fed will do what it does, but your strategy should be “bigger” than the presence or absence of near-term rate changes.

Taking the long view is perhaps the hardest thing about being in family business.  The ability to be attuned to economic trends that will affect your family business without being distracted by short-term economic “noise” (indeed, the ability to even distinguish reliably between the two) is typically hard-won and learned only through the trial-and-error of being in business for decades.  Respect those lessons and strive to collect wisdom from your fellow directors.  Markets may overreact to Fed decisions, but you and your fellow directors don’t have to.