What kind of Federal Reserve is Jerome Powell taking over?
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Jerome Powell will officially take over the Federal Reserve on Saturday, replacing Fed Chair Janet Yellen. Powell used to work at the Carlyle Group — a private equity firm — and as a Treasury Department official for the first George Bush administration (though note: he’s not an economist).
How might Powell handle Fed policy going forward? While the Federal Reserve didn’t change interest rates at its meeting this week, it’s suggested they will go up some time this year. The Fed also said it expects inflation to stabilize around its target of 2 percent per year (low inflation has been a concern for Fed policymakers voting on interest rate hikes).
Josh Bivens, director of research at the Economic Policy Institute, joined us to discuss the type of Fed that Powell is inheriting and whether he thinks it’s on the right path. Below is an edited transcript.
Josh Bivens: Powell is going to be inheriting a Federal Reserve that has definitely done some interest rate increases over the past couple of years. It is clearly in the mode of: the economy is recovering nicely, we’re getting very close to full employment, now is the time to rein it in. I actually don’t even know if I share that that’s the correct way the Fed should be acting, but it’s definitely the way the Fed is acting. Yellen was handed over an economy where it was much more contested what direction even, up or down, the Fed should be trying to push the recovery. And so she really had to decide, firmly, which path — up or down — do I go. He is inheriting a path where lots of the conventional wisdom is the Fed should absolutely be on a steady diet of interest rate increases.
David Brancaccio: And you started to allude to this — you’re not quite sure the Fed is on exactly the right trajectory. I mean, these experts keep coming on this program to call it full employment. Now’s not the time?
Bivens: I mean, we’re definitely at a much better place than we were four years ago and three years ago and even two years ago. But to my mind, I think we’re at full employment when you see wage increases that are fast enough that they threaten to push the overall inflation target well above the Fed’s comfort zone, which is a 2 percent target. We’re still not there.
Brancaccio: Now, moving beyond monetary policy, the Fed is also a big financial regulator and some see a little bit more daylight between Powell and Yellen on the issue of deregulating the financial system. Do you?
Bivens: I do. I mean, I would say a couple of things. One, we know Powell was a Treasury official in the first George Bush administration. He’s a Republican. He’s a moderate Republican, but just based on Democrats versus Republicans, you tend to have different views on what the proper sort of stance on regulation is. And two, I think Yellen really did take the need to keep the financial sector excesses in check very seriously. I mean, her last speech she gave at the Jackson Hole Economic Policy conference this past year, it was a really firm defense of sort of the stepped up regulations that have been put in place since the wake of the 2008 financial crisis. You could argue that that speech was sort of a real challenge to the Trump administration and something that made them reluctant to reappoint her. And so, yeah, I think of all the worries that I have about the handover from Yellen to Powell. I really worry that this is a transition where the Fed takes that responsibility much less seriously going forward.
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