In an op-ed in the Wall Street Journal Jason De Sena Trennert considers an interesting and important question—does the Federal Reserve have the will to fight inflation? Eventually, he gets around to giving his answer:
There is no doubt that the Fed has the tools to fight inflation if it chooses. But the question remains whether it has the political will—given the size of financial assets relative to the economy, the potential effects of tightening on the federal budget, and the Fed’s growing list of social responsibilities. Tapering may start by the end of the year, but real tightening could present risks to the economy and, in turn, the Fed’s independence. Policy makers seem increasingly convinced that there are few long-term costs to spending money we don’t have.
or, shorter, they don’t have the will to fight inflation. I tend to agree. All of their incentives point in the direction of continuing to do what they’re doing now.
It is and it isn’t the up to the Fed.
The Federal Reserve board of governors has 7 members. There is 1 vacancy, 2 whose terms expire in January (Powell, Clarida).
If the administration wanted to prioritize fighting inflation, they could fill the 3 slots; and with Brainard (a rumored pick for next Fed Chair), form the necessary majority to implement such a policy.
As it is, with the reconciliation bill likely to take all attention until the end of the year, Powell being a convenient scapegoat for inflation, I suspect things won’t change….. through Powell’s hints that he might have to do “unpleasant” things if inflation won’t behave must give the White House pause.
As Milton Friedman observed many years ago: just have a rule for monetary base growth. The perceived risks of withdrawing discretion have been dwarfed by the costs of that discretion. Its just an empirical fact.