A Politicized Fed Endangers the Economy

Link:https://www.wsj.com/articles/a-politicized-fed-endangers-economy-monetary-federal-reserve-powell-balance-sheet-climate-stress-test-social-justice-11642448983

Excerpt:

It is time to depoliticize monetary policy. First, instead of making the Fed’s mandate broader, Congress should consider narrowing it to one of price stability. The Fed’s contribution to achieving full employment should be through focusing on long-term price stability. Next, as we learn to live with Covid and as the economy continues to recover, the Fed must go beyond merely tapering its bond purchases. It must set out a credible process and timetable to unwind its balance sheet.

Should the Fed be called on again to exercise emergency powers, Congress must ensure those powers are of limited duration and that any credit facilities created are quickly transferred to the Treasury Department. Finally, the more improvisational and discretionary the Fed’s conduct of monetary policy, the more difficult it is to withstand political pressures. The Fed should move to a monetary-policy framework that is more systematic, predictable and transparent.

If politicized monetary policy doesn’t prove transitory, it is doubtful the Fed will be able to deliver either stable prices or maximum employment.

Author(s): Jeb Hensarling

Publication Date: 17 Jan 2021

Publication Site: WSJ