Federal Reserve Board chairman Jerome Powell thought he had a “problem.” Then he made a few comments on an April 22 International Monetary Fund panel, and now he’s got a “crisis.”
After months of reassuring the markets that the Fed could engineer a “soft landing” from the rising prices and wages and wars that have afflicted the nation, Powell abruptly changed his tune and warned that rates would have to move higher more quickly to stave off the recessionary ravages of runaway inflation.
Predictably, the Dow Jones average tumbled nearly 1,000 points, margin calls resonated through Wall Street and investor confidence—that has helped buttress the U.S. economy through two years of COVID lockdowns—was shattered.
Today, the Fed chairman and the institution he heads confront their most serious crisis of confidence since Powell took over in 2018. To regain their credibility and the trust of an investing public that’s vital for the economy to avoid a major meltdown, the Fed chairman must embrace the principles of crisis management that have guided public relations counselors for decades.
This is crisis management 101. Four decades ago, when Johnson & Johnson responded to the deaths of seven people who consumed Tylenol, CEO James Burke famously posited, “We have to respond even on a minute-to-minute basis to answer changing facts and opinions.” And that was before the days of 24/7 social media.
Preparation and planning, standby statements and tabletop exercises are all obligatory in contemplating crisis, but no amount of preparation can adequately prepare you for all the unpredictable moments that accompany the glare of perpetual public attention.
As Powell learned the hard way at the IMF meeting, stubbornly reasserting that the Fed’s plan would avoid recession isn’t wise in the face of equally-stubborn price increases. There’s a difference between inspiring confidence and wishful thinking.
In a crisis, the former is imperative, but there’s no room for the latter.
Speak with one voice.
In normal times, freeing organizational channels of communication should be the rule to promote a culture of transparency and openness.
But in a crisis, words count. So, organizations must shut down communications channels and speak with one voice, to avoid discordant opinions that at best, confuse the public, or at worst, promote panic.
Such is the case today with the Fed, where officials other than chairman Powell feel it incumbent to keep talking, whether or not their words enflame an already-incendiary situation.
Exhibit A is the pompous president of the St. Louis Federal Reserve Bank James Bullard, whose quest to second-guess his chairman has only accelerated during the current crisis. With inflation and the Fed in the spotlight, Bullard has eagerly welcomed any and all media and speaking opportunities to reiterate his view that the Fed has been too slow and meek in combating rising prices, and inflation could easily get out of control.
Close behind the bombastic Bullard is former New York Federal Reserve president Bill Dudley, now a Bloomberg contributor, who has also jumped on the Powell-bashing bandwagon with great verve. Interestingly, Bullard and Dudley were both passed over for Fed chairman and vice chairman when the positions were vacant.
Whether they’ve seized the spotlight out of genuine concern or political pique, the point is that in a time when investors and the economy nervously hang on every word from policy decision-makers, such public disharmony from the Fed just sows increased public worry.
Just as CEO Bob Chapek is the only Disney executive empowered to speak on the company’s Florida’s crisis, so, too, should Powell assert his prerogative to shut up the counterproductive, publicity-seeking naysayers in his administration.
Don’t answer every question.
In a related sense, it’s also important in a crisis to judiciously limit public comments. Stated another way, just because people want you to say something doesn’t mean you have to oblige.
In today’s Twitter-infused communications climate, everything is “news.” And that’s especially the case when public officials comment on hyper-charged timely topics, like interest rate policy and inflation.
In such an environment, any comment from anyone at the Fed is certain to trigger CNBC “breaking news,” sending market prices soaring or cratering on a moment’s notice.
The point is that, in terms of the flow of commentary in crisis, less is more.
Squawk if you’re wronged.
On the other hand, it is equally important to speak up in opposition if false information or misleading opinions are widely disseminated. In a crisis, a false assumption left uncorrected becomes a “media fact.”
One of chairman Powell’s great strengths is his coolness under pressure, and he has been reluctant to “correct the record” or respond directly to the criticisms of his detractors.
While this strategy has served him well over time, the current crisis atmosphere demands that he —or at least, surrogates—become more willing publicly to debunk the Fed bashers, to help prevent a tense situation from accelerating.
Lose the battle, but win the war.
As Johnson & Johnson learned after removing its best-selling product from every store shelf, costing it hundreds of millions of dollars—even though the company knew it wasn’t to blame for the poisonings—in a crisis, you can lose the battle but still win the war.
Next week, all eyes will be on the Fed as it raises the federal funds rate by a one-half point, the largest such increase since Alan Greenspan two decades ago. Chairman Powell should seize that opportunity to map out the expected interest rate increase trajectory through the rest of this year and into the next.
He should do so to avoid “surprises” as the battle continues. That kind of candid, yet confident, crisis management ultimately will reassure the markets and win the war.
Fraser P. Seitel has been a communications consultant, author and teacher for 40 years. He is author of the Pearson text “The Practice of Public Relations,” now in its 14th edition, and co-author of “Rethinking Reputation" and "Idea Wise.” He may be reached directly at [email protected].