Last week, Federal Reserve Chair Jerome “Jay” Powell appeared before the Senate Banking Committee for a hearing on whether he should be confirmed for a second term as chair. The simple fact is Mr. Powell failed spectacularly during his first term and does not deserve a second four-year term. The Senate should reject his nomination and demand a new nominee from President Biden.
As mandated by Congress, the goals of the Federal Reserve, as modified by the Federal Reserve Reform Act of 1977, should be “maximum employment, stable prices, and moderate long-term interest rates.” This so-called “dual mandate” (the second and third goals go hand-in-hand and serve together as one) has been the core mission of the Fed for more than 40 years.
That makes sense. Inflation, after all, is, as Nobel Prize-winning economist Milton Friedman pointed out, “always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” Where better to place the task of controlling inflation than housing it in the organization that manages the money supply?
To achieve its dual mandate, the Federal Open Market Committee — composed of the seven members of the Federal Reserve Board of Governors, the president of the Federal Reserve Bank of New York and the presidents of four other regional Federal Reserve Banks — determines U.S. monetary policy.
The FOMC has determined that “inflation at the rate of 2%, as measured by the annual change in the Price Index for Personal Consumption Expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate.” That goal of a 2% target for inflation was reaffirmed in 2012 and 2021.
So the goal of the Federal Reserve — the organization headed by Mr. Powell — is to keep inflation around 2%.
But inflation isn’t running at 2% per year. In fact, the numbers released last week by the Department of Labor indicate that inflation over the last year was 7%. That’s more than triple the target inflation rate, and the highest year-over-year inflation rate we’ve suffered since Paul Volker was chair of the Fed 40 years ago.
In other words, for one-quarter of Mr. Powell’s first term in office, the Federal Reserve has utterly failed at its core responsibility. In what world is a man who leads an organization that fails so spectacularly deemed worthy of a second term?
It’s not as if no one warned Mr. Powell about the perils of the oncoming inflation. Warning signs were clear to see — and publicly and loudly noted — a long time ago.
In early February, just two weeks after Mr. Biden was sworn in — and, importantly, as Mr. Biden’s minions were pitching what would become his $1.9 trillion “American Rescue Plan” — former Treasury Secretary Larry Summers penned a piece in The Washington Post warning that “there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.”
Seven weeks later, on an Institute of International Finance webcast, two senior Fed officials responded to Mr. Summers’ warning. Richard Clarida, vice chair of the Federal Reserve, and Charles Evans, president of the Federal Reserve Bank of Chicago, dismissed Mr. Summers’ concerns. Then, a month later, the FOMC released a statement saying, “Inflation has risen, largely reflecting transitory factors.”
And for months thereafter, Mr. Powell stuck to that line, and made possible the reckless spending spree so joyfully planned and implemented by Mr. Biden and his Democrat allies on Capitol Hill — even as inflation was rising, month after month, Mr. Powell continued to let the “transitory” label stick, until late November, when even a blind man could see what was going on, and Mr. Powell finally acknowledged in congressional testimony that it was “probably a good time to retire that word.”
Do you know what else it would be a good time to retire? Mr. Powell as Fed chair.
If actions are to have consequences, the Senate should deny Mr. Powell’s confirmation to a second term.
• Jenny Beth Martin is honorary chair of Tea Party Patriots Action.