Wed. Apr 14th, 2021

In many ways, new Federal Reserve Chairman Jerome Powell First testimony Everything Congress had heard from Ben Bernanke earlier this week and had said about Janet Yellen about the Fed’s support for its dual mandate from Congress to promote maximum employment and stable prices. Because of some of Powell’s specific words, commentators and markets feel that the Fed can now focus more on curbing inflation and, therefore, raise interest rates more aggressively.

While recovering from the Great Recession, the Fed, under Bernanke and Yellen, was cautious about ignoring monetary stimulus – namely, maintaining and adjusting to historically low short-term interest rate targets for long-term assets (quantitatively Ease of action). Strong employment growth and increasing employment. The Fed’s pursuit of maximum employment did not conflict with its other goal of stable prices because inflation was below the Fed’s 2 percent target. In fact, the Fed’s continued failure to reach its inflation target suggests that it could have tried to speed up the labor market recovery more aggressively.

However, as Powell told a House committee on Tuesday, unemployment has come down to 4.1 percent, down three percent from a year earlier and its lowest level since December 2000. Various other indicators of labor market health Also continued to improve Over the past year. Nevertheless, inflation remains below target. Pavel praised Yellen’s previous statements, stating that the improvement in labor market health and the inflation of the still below-target target is contrary. But here the twist is as Document By Fed watcher and economist Tim Dew.

Political cartoon on economy

As the economy drew closer to full employment, the Fed slowly began raising its target range for the federal funds rate, which ranged between zero and 0.25 percent from the end of 2008 to the end of 2015, and which now Is between 1.25 percent and. Is 1.5 percent. As Du says, Yellen described the Fed’s policy last July as a “gradual increase to obtain and maintain greater employment and stable prices” and a healthy labor market last November. To maintain and stabilize inflation around the 2 percent objective “increases. Now, however, Powell is describing a suitable path that would “strike a balance between avoiding an excessive economy and bringing price inflation down to 2 percent.”

“Avoiding a hot economy” is not a different way of saying “maintaining a healthy labor market.” Very low unemployment traditionally brings substantial economic benefits to disadvantaged groups of workers, especially African-Americans – Those who are deprived of racial inequality In 1968, the Kerner Commission scored a half-century after the problem. “Maintaining a healthy labor market” seeks to obtain, freeze and sustain those benefits. “Avoiding an overheated economy” increases the willingness to risk those gains to avoid the possibility of high inflation by preventing the economy from ever getting too hot.

Yes, the likelihood of high inflation to some extent increases with very low unemployment, but Powell’s language raises concerns that the Fed will see the 2 percent target as a ceiling, rather than a stated position that inflation averages 2 percent. Should be The latter implies that inflation will especially rise above 2 percent in a particularly strong economy and sometimes fall below a weak economy. Viewing 2 percent as a ceiling would mean that on average, inflation would be less than 2 percent and that the economy and labor markets would, on average, be less healthy than they could be.

The change in emphasis is subtle. Nobody thought Powell was hinting that the Fed was preparing to slam on the monetary policy break. In fellow testimony before a Senate committee on Thursday, he Having said There is no evidence that the economy is currently warming and she expects the Fed’s current path to raise interest rates gradually to be justified.

Starting with Bernanke, the Fed has tried to come forward publicly about its intentions. That Did not work as usual. Let’s hope, though, that Powell’s changed description of the Fed’s goals is more smoke than fire, and that the Fed won’t let the Fed reduce the real economic gains that workers – especially traditionally disadvantaged – can achieve. If it creates a healthy labor market.

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