Senate Banking Committee Chairman Tells Fed to Ignore Inflation and Protect Jobs
Double 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 help reduce inflation by reducing demand for interest rate sensitive economic activities. However, a family’s “portfolio” needs have little to do with interest rates, and the potential job losses caused by excessive monetary tightening will only compound these problems for the working class. Maintaining full employment while reducing inflation is essential to protect the workers who fuel our economy. Congress codified this mandate in the Full Employment and Balanced Growth Act of 1978 – the Humphrey Hawkins Act.
The law clearly states that “increased employment opportunities and full employment would greatly contribute to the elimination of discrimination based on sex, age, race, color, religion, national origin, disability or other inappropriate factors”.
Monetary policy tools take time to reduce inflation by restraining demand until supply catches up — time that working-class families don’t have. As noted by JP Morgan Asset Management’s chief global strategist, David Kelly, “[i]n the long history of Federal Reserve mistakes, one general mistake stands out. They tend to wait too long and then overdo it.
We must avoid having our near-term advances and strong labor market overwhelmed by the consequences of aggressive monetary actions to reduce inflation, especially when Fed actions fail to address its key drivers. For American workers who are already feeling the crush of inflation, the job losses will only make the situation worse. We cannot risk the livelihoods of millions of Americans who cannot afford it. I ask you to remember your responsibility to promote as many jobs as possible and that the decisions you make at the next FOMC meeting reflect your commitment to the dual mandate.
Brown also mentions nonsense about the Cut Inflation Act of 2022 that cuts inflation when studies show 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 ministers in 1971 “The dollar is our currency, but that’s your problem.”
Ever since Nixon killed gold convertibility, there has been no check on budget deficits. Countries could and did spend at will. The Fed was finally forced to raise rates, the dollar soared in response.
Total dollar credit now exceeds $90 trillion, and the debt clock shows the US national debt stands at nearly $31 trillion. There are no constraints on debt or government spending anywhere.
Meanwhile, the mainstream media is devoid of any discussion of the root cause of the current problems. Nor is there an end in sight to reckless fiscal policies.
Who should the Fed listen to?
Brown is correct that Fed policy acts with a lag.
I agree that the Fed is likely to overshoot. Still, it’s a dangerous setup when a supposedly independent Fed draws inspiration from party leaders ahead of national elections.
If the Fed pivots now, it will appear that the Democrats played a part in it. The Fed didn’t listen to President Trump and neither should it listen to Sherrod Brown or President Biden.
Above all, there shouldn’t be a Fed listening to anyone. It’s a huge problem.
Scroll to continue
The Fed actively and deliberately distorted price signals. This is what causes the bubbles. And the Fed is now looking to burst a bubble it helped create.
We had two consecutive housing bubbles because of Fed policy. Congress also played a role.
The solution is to end the Fed and let the free market set rates.
Since the Fed is still chasing his tail (and the stories too), there shouldn’t be a Fed. But one thing would be worse: let Congress or the president set monetary policy for partisan purposes.
The fundamental problem is that unlimited congressional spending was made possible when Nixon “temporarily” opened Pandora’s box, ending the possibility of gold redemption in 1971.
For a more in-depth discussion, please see It’s Our Dollar But Your Problem, 2022 Style.
The idea that a dual mandate is possible in the current setup is ridiculous given that there are no restrictions on budget spending.
Gold curbed recklessness. There are no brakes now.
Ask yourself, “How is $90 trillion going to be repaid?”
This post is from MishTalk.Com.
Thanks for listening!
Please subscribe to MishTalk email alerts.
Subscribers receive an email alert of each message as it occurs. Read the ones you like and you can unsubscribe at any time.
If you are subscribed and not receiving email alerts, please check your spam folder.