The editors of the Wall Street Journal remark on the impending appointment of a Federal Reserve chairman for the next four years:
The Powell Fed has presided over inflation that it failed to predict and has been slow to address. The Fed’s professed inflation target is 2%, but the consumer price index rose 6.2% in October above a year earlier.
By any measure this is an historic failure. Mr. Powell’s credibility has been damaged with his persistent refrain, until recently, that inflation is “transitory.†His new monetary policy framework of average-inflation targeting, unveiled in August 2020, has been a bust.
If Mr. Biden wants to distance himself from this inflation failure, he’d nominate a critic of current Fed policy. Kevin Warsh, whom Mr. Trump passed over for Mr. Powell, would provide market credibility. We never thought we’d say this, but economist Larry Summers would be a logical Democratic choice given his prescience about inflation. But that would cause heads to explode on the Senate left.
Here’s Section 2A of the Federal Reserve Act, the legislation that created the Federal Reserve back in 1913:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
The emphasis is mine. Here’s the Labor Force Participation Rate:
the rate of inflation:
source: tradingeconomics.com
and long term interest rates are at historic lows.
I’ll leave it to the reader. Has the Federal Reserve succeeded in its mandates? I think it’s been failing for a long time.
