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Welcome to the Powell Fed

Robert J. Samuelson on

There are bound to be surprises. Some economists worry that passage of the Republican tax cut will overstimulate the economy. To combat the resulting inflationary pressures, the Fed would raise interest rates faster than it intended. This might cause an economic slowdown or recession.

Among those who have worked with Powell, there's much good will. One Democratic economist (who would have preferred that Yellen be nominated for a second term and wishes to remain anonymous) put it this way: "He's a wonderful guy and gets along well with people. He's played a conciliatory role. He's intelligent and not an ideologue."

William Hoagland, a Republican and senior vice president at the Bipartisan Policy Center, where Powell worked for several years, uses similar words: "He's a standup guy, a solid individual. He's easy to talk with." (While at the BPC, part of Powell's job was to persuade Republicans not to default on the national debt.)

There are questions, of course. Will Powell be stigmatized as a creature of Wall Street? He's not poor. Citing a recent financial disclosure form, the Washington Post put his net worth between $20 million and $55 million.

Will he protect the Fed's vaunted independence? In an important new book, political scientist Sarah Binder and hedge-fund manager Mark Spindel argue that the Fed's independence is overstated (the book's title: "The Myth of Independence").

Binder and Spindel suggest a political cycle: When the economy is doing well, Congress ignores the Fed; when the economy stumbles, it tends to blame the Fed -- and restrict its powers or require more accountability. Powell has pronounced himself against many recent proposed restrictions (for example, a requirement that the Fed set interest rates according to a formula).

The biggest question mark involves Trump. In a presidency that has been full of surprises and vitriol, relations between the White House and the Fed have been remarkably calm and monotonous. There have been no personal attacks or vicious tweets.

But is Trump planning to remake the Fed according to his own priorities? Does he think that, of all the plausible candidates for the Fed chair, Powell would be the easiest to influence or intimidate?

Or are we just watching the Binder-Spindel cycle in action? Why criticize the Fed when the unemployment rate is declining and the Dow Jones is rising? But what happens when the day comes, as it will, when the unemployment rate rises and the Dow Jones falls? The Powell Fed may be less boring than we now imagine.

(c) 2017, The Washington Post Writers Group

 

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