The Powell Fed deserves Talleyrand’s opprobrium of the Bourbons: “learned nothing and forgot nothing.”
Some sixty- odd years since Friedman and Schwartz published their monumental tract on the monetary history, this Fed believed and populated its belief of transitory inflation after the greatest monetary expansion in US history. All this while Powell’s renomination for another 4 year term as Fed Chair awaits Senate confirmation.
A Senate approval will be an unthoughtful victory for those who relish a triumph of politics over economics. But, is that a victory for good governance? What should we expect from a Fed that thinks that Global Warming and the pursuit of Diversity trump the already abused dual mandate of restrained inflation and maximum employment?
The only issues now are how big a jump in the Fed target rate we will get on March 16, if not before? How high will the target rate be pushed? Will balance sheet contraction get onto the Fed’s policy horizon?
The Fed has created far more market uncertainty by its laggard monetary policy actions and its attraction to being a significant agent of social change. As a Central Bank, this Fed has gone far beyond legendary Chairman William McChesney Martin Jr.’s obiter dictum that the Fed “is independent in Government.” Martin at least had the courage to defy LBJ and raise interest rates by 50 basis points in 1965 despite a trek to the President’s Texas-ranch as the Viet Nam war heated up spending.
The Fed’s actions should make Senators who will vote on Powell’s re-nomination think carefully. Do they really take Central Bank independence seriously? Or, are they happy that the Fed played a significant role in unleashing the cruelest “tax of all”— inflation?
If a Company underperformed its projections as badly as this Fed, an activist Board would find another CEO. That would be standard corporate governance. The Senate can’t fire the President, but it could give a vote of “no – confidence” on the President’s CFO! That is unlikely, but re-confirmation is a bad example of proper governance over America’s central bank.