Powell may not be the choice the Fed progressives want, but he’s the man they need

Jerome Powell, whom President Biden just nominated for a second four-year term as Federal Reserve chair, may not be the choice progressive Democrats want. But maybe he’s the one they need. Powell isn’t an old-fashioned inflation trigger, he’s in no rush to raise rates like the 2022 midterm approach would, and he can almost certainly confirm for a second term.

Still, it’s understandable why some on the left might be unhappy — if for no other reason than Powell’s first term as Fed boss is indebted to Donald Trump. And if you think anything to do with the 45th president needs to go, there’s no need to discuss whether Powell is worthy of another 4 years running America’s central bank.

Likewise, Radicals may be disgusted by the instinct that the Democratic president in the Age of Inequality chooses a wealthy, white Republican man for the job, even if the current Fed chair is reappointed during the president’s first term. Even worse, from a left-wing perspective, Powell is a former partner of the Carlyle Group, a giant private equity fund. Wall Street wins again. Not to mention that Carlyle was recently in the news – it’s also the former home of Republican Glenn Youngkin, the sad winner of the Virginia gubernatorial race earlier this month. More bad energy for the Democratic Party.

But there is a more substantive progressive critique, one voiced by Senator Elizabeth Warren (D-Mass.) among others. It went like this: The Federal Reserve was too focused on narrow macroeconomic goals, namely full employment and stable inflation. And of the two, it has confused price stability for decades. A central bank of the 21st century, especially in the context of the Global Financial Crisis, must be more concerned with a wide range of subjects, including banking regulation, racial equity, and volatility. climate change. It also needs to clean up its actions. Warren has Is called Powell was a “failed leader” who oversaw a “culture of corruption” as exemplified by Fed officials who traded stocks and made other investments while setting monetary policy. bad.

In other words, if you’re someone eager for a game-changing pick who will take the Fed in an entirely different direction, Powell might not be your man. Current Governor Lael Brainard, nominated for the vice chair, isn’t likely your woman either. As JPMorgan told clients Monday morning, “Today’s news implies policy continuity and removes the source of uncertainty, of course.” Goldman Sachs put it this way: “Chairman Powell and Governor Brainard have similar views on monetary policy.”

Then again, the kind of Fed picks that could keep MSNBC anchored and giddy EconTwitter almost certainly unable to outmaneuver “Manchinema” in the Senate. It will still be some time before full advocates of new economic approaches, such as Modern Monetary Theory, are de facto picks for the Fed’s top work. It would take a rather detached US president to ignore the potential reaction of Wall Street to a completely irrational choice.

Then again, Powell has presented himself as a Fed chair who doesn’t see inflation as an issue everywhere and always with urgency, and doesn’t have some incentive to stimulate rate hikes. Both Powell and Brainard believe that the current rise in inflation reflects transient factors rather than the beginning of a 1970s-style Great Inflation, as some Republicans in Congress are contending. essay. Testimony before Congress earlier this year showed how unconventional Powell was despite his background. To speak Before a House committee, he dismissed the short-term risk of inflation, expressed concern about current levels of federal debt and made clear that the bank should consider the labor market participation of all group, not just an aggregate number.

As such, the current economic consensus from the likes of Goldman Sachs and JPMorgan is that 2022 will be a year of faster economic growth, falling unemployment and falling inflation. Basically, everything should go up, and everything should go down. That may not be enough to keep Democrats in power in Congress, but it could prevent an all-out assault. I think that will be an important result for progressives. They should want a Fed chair who minimizes the risk of the central bank breaking that. And they certainly wouldn’t want Biden to have chosen a hawk eager to cool the economy through a series of rate hikes.

However, they also shouldn’t want a superman who will send a dangerous economic message to consumers, businesses, and investors that the Fed doesn’t take inflation seriously. Finally, changing inflation expectations allow the price increase to begin spiraling higher and higher. Such a scenario would not only be a recipe for a politically bad midterm election season for Democrats, but also increase the risk of a bad 2024 and the possibility of a reversal. Biden’s agenda.

And if choosing Powell still makes progress unfavourable, they should remember that Trump spent two years attack of their own choosing. So he will do it for himself. Powell may not be the choice the Fed progressives want, but he’s the man they need


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