Jerome Powell, Fiscal Lobbyist

The Fed chairman wants us to forget his role as spending cheerleader

WSJ editorial.

"Jerome Powell doesn’t want to admit that the Federal Reserve has helped to spur the current burst of inflation, which is now three times higher than the Fed’s target. We hope the central bank chairman can explain that one during his confirmation hearing.

But even if he thinks today’s inflation has no monetary roots, he shouldn’t be able to get away with his claim that he had nothing to do with the fiscal spending over the last 18 months that boosted excessive demand. That’s what he claimed in his Wednesday press conference when asked about the point. That’s not the Fed’s business, Mr. Powell rightly said.

If only he had thought that in 2020 and early 2021 when Congress and two different Presidents were debating how much to spend. Mr. Powell then was a stalwart lobbyist for spending as much as Congress wanted. 

In a speech on Oct. 6, 2020, Mr. Powell came down solidly on the side of more fiscal economic support:

“The expansion is still far from complete. At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. . . . the risks of overdoing it seem, for now, to be smaller. Even if policy actions ultimately prove to be greater than needed, they will not go to waste. The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods.”

After the election, in mid-November 2020, MarketWatch reported that Mr. Powell told a business group that Congressional spending can target income support for groups of Americans in a way that the central bank cannot. “There hasn’t been a bigger need for it in a long time,” Mr. Powell said, according to MarketWatch.

In February 2021, in the heat of the Democratic effort to pass the $1.9 trillion spending bill in the name of Covid relief, Mr. Powell addressed the New York Economic Club. Economist Gregory Mankiw agreed with Mr. Powell that fiscal policy had been important at the start of the pandemic but asked the chairman if there was a concern as it continued amid rising federal debt.

“My own view is fiscal authorities will need to return to this question and the time to do that, though, is not now when the economy is weak, when we have 10 million unemployed,” Mr. Powell replied. “That time is when the economy is strong, unemployment is low, taxes are rolling, and that time will come, but I would say it’s not now.” That was read, and we think correctly, as a Federal Reserve blessing for the Democratic bill.

We can understand why Mr. Powell now wants to take a vow of fiscal silence. All that spending has spurred too much demand amid supply problems that have contributed to inflation. But as he faces Senate confirmation for four more years at the Fed, he shouldn’t be able to expunge from the record his own misguided and inappropriate role in spurring excessive federal spending."