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Opinion | Why Progressives Shouldn’t Push Biden to Oust Trump’s Fed Chair

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16.09.2021

There are people who could be as good a Federal Reserve chair as Jerome Powell. But his virtues have been deeply underestimated by too many progressives, and the cascade of risks that come with replacing him makes it not nearly worth the gamble.

As the debate gets hotter on the left over whether President Joe Biden should give Powell another term, progressives should step back and take the win. Even if it does mean letting a Republican appointed by Donald Trump keep the job.

Start with Powell’s strengths. By far the most important decision the Fed makes is when to slow economic expansions in the name of keeping inflation contained. For decades the Fed consistently hit the brakes prematurely, raising interest rates and keeping unemployment too high for most workers to gain any real leverage to demand wage increases. In a recent paper at the Economic Policy Institute, we found that the excess unemployment tolerated by the Fed (and other policymakers) to be the single most-important factor suppressing wage growth for the vast majority of American workers, and that it has done particularly grave damage to Black workers. This too-slow wage growth is, in turn, the root cause of the enormous rise in inequality we’ve seen over that time.

It’s hugely rare — and important — to have a Fed chair willing to take on some risk that inflation might nudge above the Fed’s target for a short time in exchange for keeping unemployment very low and wage growth robust.

Powell has been willing to take on this risk.

In 2019 the unemployment rate averaged 3.7 percent, the lowest since 1969. Conventional wisdom said that the Fed should have been frantically raising interest rates, sure that this rate of unemployment signaled imminent economic overheating. But when asked if he was worried about this scenario during congressional testimony, Powell set #EconTwitter aflutter by answering: “We don’t have any basis or any evidence for calling this a hot labor market. We haven’t seen wages moving up as........

© Politico


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