{"id":58122,"date":"2023-01-15T09:00:17","date_gmt":"2023-01-15T14:00:17","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=58122"},"modified":"2023-01-13T15:01:18","modified_gmt":"2023-01-13T20:01:18","slug":"jerome-powells-declaration-of-independence","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2023\/01\/jerome-powells-declaration-of-independence\/","title":{"rendered":"Jerome Powell's Declaration of Independence"},"content":{"rendered":"

Remember back about four or five years ago (was it really that long ago?) we heard a lot about how the Federal Reserve\u2019s sacrosanct independence was being threatened because the incumbent in the White House at that time was trying to influence the Fed\u2019s monetary policy? <\/p>\n

We don\u2019t hear that much about it anymore since the Oval Office and Congress switched sides, although the threats against that independence have grown even louder, largely because they don\u2019t get reported on to nearly the same degree. <\/p>\n

For example, last fall the chairman of the Senate Banking Committee, Sherrod Brown, and the then chairman of the House Financial Services Committee,\u00a0Maxine Waters, both sent letters to Fed Chair Jerome Powell decrying his recent policy of raising interest rates by more than 400 basis points since March to combat inflation. \u201cYou must not lose sight of your responsibility to ensure that we have full employment,\u201d<\/em> Brown wrote.<\/p>\n

Around the same time Sen. Elizabeth Warren, another Democrat, said Powell \u201crisks pushing our economy off a cliff.\u201d<\/em> Warren, who loudly voted against Powell\u2019s reappointment as Fed chair, added, \u201cThere is a big difference between landing a plane and crashing it.\u201d<\/em><\/p>\n

<\/div>\n

I suppose they have a right to criticize Fed policy as much as anyone else, although that right should extend to members of both parties. To his credit, Powell has largely kept silent or muted his comments on these attacks.<\/p>\n

But now it appears that Powell believes he is being pushed too far. Criticizing the Fed for the way it conducts monetary policy to maintain stable prices and full employment\u2014its legal mandate from Congress, after all\u2014is one thing. <\/p>\n

But to force the Fed to go way beyond its mandate and do something that is the rightful purview of Congress is an entirely different matter. And Powell said he won\u2019t stand for it.<\/p>\n

I\u2019m talking about the desire of many progressives and environmentalists to have the Fed impose their views on climate change on the banks the Fed regulates and the customers those banks serve. <\/p>\n

If they get their way, the Fed would be able to decree, for example, that J.P. Morgan Chase or Bank of America would no longer be able to make loans to the likes of Exxon and Chevron or any other fossil fuel producer\u2014or any other company or industry they don\u2019t like. <\/p>\n

But at a symposium on central bank independence in Sweden last week, Powell said in no uncertain terms that \u201cWe are not, and will not be, a \u2018climate policy maker.\u2019\u201d<\/em><\/p>\n

\u201cDecisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public\u2019s will as expressed through elections,\u201d<\/em> Powell said. The Fed, he added, \u201cdoes have narrow, but important, responsibilities regarding climate-related financial risks. These responsibilities are tightly linked to our responsibilities for bank supervision. But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals. We should \u2018stick to our knitting\u2019 and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.\u201d<\/em><\/p>\n

Wow. No wonder Warren voted against him.<\/p>\n

But that doesn\u2019t mean those Democrats critical of Fed monetary policy don\u2019t have a point. <\/p>\n

Indeed, in its fight to rein in inflation,\u00a0the Fed has largely abandoned its second mandate from Congress, namely promoting full employment. <\/p>\n

It seems willing to sacrifice the recent gains that workers, mostly those at the lowest end of the pay scale, have managed to achieve in the past two years or so in terms of more jobs and higher wages, as if those are what\u2019s causing inflation and not profligate government fiscal and monetary policies. <\/p>\n

This certainly adds fuel to the argument that whether intentionally or not,\u00a0Fed policies mostly benefit the wealthiest Americans, although in this case it clearly is intentional.\u00a0<\/p>\n

Until recently,\u00a0when inflation finally showed that it was anything but transitory, the Fed spent most of the past 15 years inflating asset prices that mostly benefited the most well off, even as wage gains lagged. Now that wages have started to accelerate, the Fed wants to step on the brakes and bring this progress to a halt.\u00a0<\/p>\n

<\/div>\n

It also raises the question whether wage gains are necessarily and by definition inflationary. Workers are only playing catch-up after years of being underpaid, which certainly held inflation in check. <\/p>\n

By the same token, fewer people are working these days \u2014 the labor force participation rate was only 62.3% in December \u2014 which, in a growing economy, would imply that productivity is going up, which by definition is not inflationary. It's only when productivity goes down and wages are rising is it inflationary.\u00a0<\/p>\n

So trying to fight inflation by throwing people out of work is not only cruel and unfair but also unproductive and unnecessary. <\/p>\n

It's great that Powell won\u2019t allow the Fed to get pushed around by the climate change gang. Now it really needs to focus on the real main drivers of inflation, which are too much money in the system and runaway federal spending. <\/p>\n

The Fed has a lot of control over the first part but very little over the second, which is where Congress needs to help.<\/p>\n

George Yacik<\/a>
\nINO.com Contributor<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Remember back about four or five years ago (was it really that long ago?) we heard a lot about how the Federal Reserve\u2019s sacrosanct independence was being threatened because the incumbent in the White House at that time was trying to influence the Fed\u2019s monetary policy? We don\u2019t hear that much about it anymore since […]<\/p>\n","protected":false},"author":16,"featured_media":53525,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[1750,31971,3554],"class_list":["post-58122","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-inflation","tag-jerome-powell","tag-the-fed"],"yoast_head":"\nJerome Powell's Declaration of Independence - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"The Fed really needs to focus on the real main drivers of inflation, which are too much money in the system and runaway federal spending.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2023\/01\/jerome-powells-declaration-of-independence\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Jerome Powell's Declaration of Independence - 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