Dereliction of Duty

The editors of the Wall Street Journal chortle over the most recent Fed pronouncement:

Federal Reserve Chairman Jerome Powell finally jettisoned the word “transitory” to describe today’s inflation, and we suppose it’s better late than never. Asked by Sen. Pat Toomey on Tuesday how long inflation would have to persist before the Fed no longer considers it to be transitory, Mr. Powell abandoned the word.

The chairman acknowledged that inflation has long since gone beyond the central bank’s 2% target. He then said that some people define transitory to mean “short-lived.” But at the Fed “we tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation.” He added that perhaps it’s time for the Fed to “retire” the word and “try to explain more clearly what we mean.”

That sounds good to us, though it does invite the question of what he means by a “permanent mark” from inflation. The current annual rate of 6% is already permanent in the sense that the inflation of the last year is built in and prices won’t fall to erase it. Transitory or permanent, we’d prefer that Mr. Powell act to stop it.

As I and others have pointed out the Fed appears to have adopted as it mandate a second derivative approach, i.e. managing the rate of change in prices. However, that is not its charter and the empowering legislation could not be clearer: its charter is to maintain stable prices to the greatest degree possible. What Mr. Powell and the Fed governors are presently doing is non-feasance, dereliction of duty. Not only should they not be reappointed, they should be fired for cause.

8 comments… add one
  • Drew Link

    Cause: “the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty or fraud, (ii) conduct tending to bring the Company or any of its Subsidiaries into substantial public disgrace or disrepute, (iii) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries”

    Yeah. For cause.

  • steve Link

    Do they longer have a dual mandate? It appears they think they do. Why fire them for inflation when I dont remember you suggesting the same for unemployment?


  • Perhaps you should go back and re-read that comment, steve. Is it that you don’t understand the meaning of “dual” or “mandate”? When you have two objectives failing at one of them does not mean you satisfied your mandates.

    I’ll provide an example. Let’s say your mandate is to drive to Cleveland and back. You reach Cleveland. Have you succeeded in your mandates?

  • steve Link

    Re read what I wrote. I am not disputing your desire to fire them for failing the inflation part of the mandate. I am noting your failure/lack of concern about the second part of the mandate. Its OK to admit you only care about the inflation part. Also note that I am saying they have failed at the employment part.


  • Unemployment is moving in the right direction; inflation?

    But the distinction is between necessary and sufficient. IMO failing miserably to address part of the mandate is sufficient not to be re-appointed.

  • steve Link

    Still avoiding the question. UE is going the right direction now. It was awful in 2020. Awful in 2009 and for awhile after, yet no suggestion that we fire anyone.


  • Let me provide another factor you may not have considered. I’m willing to cut the Fed governors some slack on unemployment because the entire notion of a dual mandate is predicated on the Phillips Curve (a stable and inverse relationship between unemployment and inflation). When I was taking economics classes the Phillips Curve was taught as gospel. Now we know it not to be true. There is no such relationship (my own view is that there is a relationship but it can’t be measured correctly in a single economy when we now have a global economy).

    So what we know now is that inflation is within the control of the Fed by controlling interest rates but unemployment is not

    I have long thought that the last four Fed chairmen (Greenspan, Bernanke, Yellen, and Powell) have all been terrible but of them Powell has been the least competent.


  • steve Link

    People may not believe in the Phillips curve anymore but I think most believe there is some linkage between interest rates and employment. If you read through the history of past recessions an unwarranted increase in interest rates is often blamed for some recessions. So there may be a price for controlling inflation. Also, while I think the Fed should have a better chance at controlling inflation in the case of a sudden demand or supply shock I think the best they can do is react after the fact and it may take a while to bring inflation under control.


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