8/27/2022
Is Jerome Powell Following History to Fight Inflation?
Rounduptags: economic history, inflation, Recession, Federal Reserve, Jerome Powell
Adam Tooze is a columnist at Foreign Policy and a history professor and director of the European Institute at Columbia University. His latest book is Crashed: How a Decade of Financial Crises Changed the World, and he is currently working on a history of the climate crisis. Twitter: @adam_tooze
At the annual gathering of central bankers and economists in Jackson Hole, Wyoming, this year, all eyes were on U.S. Federal Reserve Chair Jerome Powell. Last year at the Jackson Hole conference, Powell had announced a new era in economic policy. This was premised on the assumption that we were in an era of low inflation. The Fed would, in the future, target average inflation, offsetting periods of low inflation below 2 percent per year with periods of more rapid price increase. Today, that world seems very remote. Inflation in the United States is running at more than 8 percent, the most rapid rate since the 1970s. Given this extraordinary turnaround, Powell needed to signal that the Fed was serious about stopping inflation.
How to make the case? Jackson Hole is a meeting of central bankers and economists. But in making his stand, Powell invoked neither economic theory nor econometrics. Instead, he summoned history.
He gave a speech laced with references to the 1970s and 1980s and paid his respects to three of his predecessors—Paul Volcker, Alan Greenspan, and Ben Bernanke. His aim was to signal that though we may no longer be in the era that Bernanke once dubbed the “great moderation,” that does not mean that we are going backward to the future. We are not heading back to the 1970s. The Fed will meet the challenge of inflation promptly and head-on. This time will be different.
In the fall of 2021, Powell still spoke of inflation as transitory. And it remains true that a large part of the price surge has been induced by supply-side issues, such as supply chain bottlenecks and surging oil prices. There is every reason to expect those pressures to ebb in the coming months. But to overemphasize this point would not help Powell make his case. So, instead, he placed emphasis on the inflationary momentum that has built up on the demand side. Investment and consumption are running ahead of capacity. Wage growth has accelerated significantly. To damp this down, the Fed is raising rates, squeezing credit, and encouraging saving. The result, as Powell acknowledged, will likely be a period of “below-trend growth” and some “softening of labor market conditions.” This is central-banker-speak for a recession.
comments powered by Disqus
News
- The Debt Ceiling Law is now a Tool of Partisan Political Power; Abolish It
- Amitai Etzioni, Theorist of Communitarianism, Dies at 94
- Kagan, Sotomayor Join SCOTUS Cons in Sticking it to Unions
- New Evidence: Rehnquist Pretty Much OK with Plessy v. Ferguson
- Ohio Unions Link Academic Freedom and the Freedom to Strike
- First Round of Obama Administration Oral Histories Focus on Political Fault Lines and Policy Tradeoffs
- The Tulsa Race Massacre was an Attack on Black People; Rebuilding Policies were an Attack on Black Wealth
- British Universities are Researching Ties to Slavery. Conservative Alumni Say "Enough"
- Martha Hodes Reconstructs Her Memory of a 1970 Hijacking
- Jeremi Suri: Texas Higher Ed Conflict "Doesn't Have to Be This Way"
Trending Now
- New transcript of Ayn Rand at West Point in 1974 shows she claimed “savage" Indians had no right to live here just because they were born here
- The Mexican War Suggests Ukraine May End Up Conceding Crimea. World War I Suggests the Price May Be Tragic if it Doesn't
- The Vietnam War Crimes You Never Heard Of