Dual Mandate or Single Mandate?
Please consider Sherrod Brown’s Letter to Jerome Powell asking Powell to focus on full employment, not inflation.
The Federal Reserve’s tools work to lower inflation by reducing demand for economic activities sensitive to interest rates. However, a family’s “pocketbook” needs have little to do with interest rates, and potential job losses brought about by monetary over-tightening will only worsen these matters for the working class. Maintaining full employment while reducing inflation is central to protecting the workers who power our economy. Congress codified this mandate in the 1978 Full Employment and Balanced Growth Act – the Humphrey Hawkins Act.
The law makes it clear that, “Increasing job opportunities and full employment would greatly contribute to the elimination of discrimination based upon sex, age, race, color, religion, national origin, handicap, or other improper factors.”
Monetary policy tools take time to reduce inflation by constraining demand until supply catches up – time that working-class families don’t have. As J.P. Morgan Asset Management chief global strategist David Kelly noted, “[i]n the long history of Federal Reserve mistakes, one general error stands out. They tend to wait too long and then do too much.”
We must avoid having our short-term advances and strong labor market overwhelmed by the consequences of aggressive monetary actions to decrease inflation, especially when the Fed’s actions do not address its main drivers. For working Americans who already feel the crush of inflation, job losses will make it much worse. We can’t risk the livelihoods of millions of Americans who can’t afford it. I ask that you don’t forget your responsibility to promote maximum employment and that the decisions you make at the next FOMC meeting reflect your commitment to the dual mandate.
Brown also mentions nonsense about the The Inflation Reduction Act of 2022 reducing inflation when studies show that it won’t.
It’s Our Dollar But Your Problem, 2022 Style
To understand what’s going on with the dollar, interest rates, inflation, and credit gone wild, we need to review history.
John Connally, President Nixon’s Treasury Secretary, bluntly told a group of European finance minsters in 1971 “The dollar is our currency, but it’s your problem.”
Ever since Nixon killed convertibility of gold there has been no checks on fiscal deficits. Countries could spend at will and did. The Fed was finally forced to hike rates, the dollar has soared in response.
Total dollar credit is now over $90 trillion and the Debt Clock shows US national debt at close to $31 trillion. There are no constraints on debt or government spending anywhere.
Meanwhile, mainstream media is devoid of any discussion of the root cause of the current problems. Nor is there any end in sight to reckless fiscal policies.
Who Should the Fed Listen To?
Brown has a point about Fed policy acting with a lag.
I concur that the Fed is likely to overshoot. Yet, it is a dangerous setup when an allegedly independent Fed takes its cues from party leaders ahead of national elections.
If the Fed pivots now, it will appear as if Democrats had a role in it. The Fed did not listen to President Trump and it should not listen to Sherrod Brown or President Biden either.
Importantly, there should not be a Fed at all listening to anyone. That’s one huge problem.
The Fed has actively and purposely distorted price signals. That’s what causes bubbles. And the Fed now seeks to pop a bubble it helped create.
We have had two consecutive housing bubbles because of Fed policy. Congress had a role as well.
The solution is to end the Fed and let the Free market set rates.
Pandora’s Box
Given the Fed always chases it tail (and tales as well), there should not be a Fed. But one thing would be worse: Letting Congress or the President set monetary policy for partisan benefit.
The root problem is unrestricted Congressional spending made possible when Nixon “temporarily” opened Pandora’s Box ending gold redeemability in 1971.
For further discussion, please see It’s Our Dollar But Your Problem, 2022 Style.
The notion that a dual mandate is possible in the current setup is ridiculous given there are no restraints on fiscal spending.
Gold provided a brake on recklessness. There is no brake now.
Ask yourself, “How is $90 trillion going to be paid back?”
This post originated at MishTalk.Com.
Thanks for Tuning In!
Please Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.
If you have subscribed and do not get email alerts, please check your spam folder.
Mish
Jerome Powell a letter requesting the Fed ignore inflation to protect
jobs.”
The system started falling apart in the late 90s when derivatives got deregulated. Since then the economy has been in a tailspin and lurched from one bubble to the next. Throw in globalization and it’s a recipe for civil war and global conflict. The 2020s are the end of it all. Those that die will be thankful they didn’t have to live it.