Jerome Powell’s term as Federal Reserve Chair ends in January and President Biden must decide if he will reappoint Powell or pick somebody else. Populists on the left want Powell replaced. In the eyes of many liberal economists, Powell has done well. He has printed trillions, crossed a red-line the Fed in its over 100 years history never crossed by purchasing high-yield and corporate bonds, ignored rising inflation, and nodded to disparities in racial unemployment and climate change.
What more could a Keynesian ask for?
Apparently, Powell’s approach isn’t interventionist enough. The Fed Up Campaign, a coalition of labor and community groups, wants Powell replaced. They issued a 10-point checklist of things they want to see in the next Fed chair. Below are some of the more ridiculous highlights.
- Address racial disparities in employment with monetary policy
- Advocate for high federal deficits
- Create FedAccounts (retail deposit accounts held at the Fed) that would effectively nationalize the banking system.
- Make climate change a focus of the Fed
- Use monetary policy to fund infrastructure and green investment proposals
Hopefully, Biden is smart enough has advisors who are smart enough, to recognize the vast danger a Feder Reserve focused primarily on employment, racial disparities, climate change, and monetizing deficit spending presents to the stability of the dollar.
Using monetary policy to try to solve a nation’s problems is how a currency becomes worthless. Monetary policy can do nothing about the climate, nothing about racism, nothing about employment in the long-run, and monetizing high deficits and massive government spending programs is the very definition of reckless monetary policy.
What has happened over the last decade is that under the leadership of Ben Bernanke, the Fed began justifying its extreme interventionism in the economy by citing its dual mandate (inflation and employment). Up until Bernanke, the employment side of the mandate was always secondary because Paul Volker and Alan Greenspan understood that inflation is the only variable the Fed can directly influence. By creating low and stable inflation that would allow the private sector to plan for the future, the Fed could promote maximum employment. That strategy helped Volker tame inflation in the 1980s after the Fed allowed it to get out of control by focusing too much on employment in the 1970s. And it helped business boom in the 1990s.
Bernanke changed the Fed’s approach and in doing so he unleashed a pandora’s box of sorts. Now populist campaigns like Fed Up want congress to add additional mandates to the Fed. Why bother with the democratic process when you can jam partisan policies through congress using reconciliation and then assign them to the “independent Fed.”
This is a disturbing trend that has far too much support already. Voters who support Fed Up are still likely a minority, but this campaign will continue to gain support until economists and Fed policymakers grow a backbone and stand up to this crowd.