The Federal Reserve owes President Trump an apology, says Stephen Moore, in a recent op-ed piece for Fox Business.
Moore says that Fed Chairman Jerome Powell essentially admitted as much during his recent speech during the Jackson Hole symposium.
Powell said that the Fed has continually come in below its target inflation rate of 2%. He mentions it will now let inflation run higher as needed.
“The Fed is tacitly admitting that its deflationary monetary policy has restrained growth and held down wages,” said Moore, adding that the Fed is now aiming for higher inflation to get money moving in the economy.
“Powell’s 3,000-word address could have been summarized in just one sentence: “President Trump was right; we were wrong,” said Moore.
Moore says Trump has been sounding the alarm for the last few years that the Fed has been too tight with its monetary policy. This causes commodity prices to fall and long term interest rates to plunge.
“Trump may not be a trained economist, but when it comes to how to create growth, this real estate titan has uncanny instincts.”
The economy was humming along before the pandemic. However, growth could have been even better if Powell didn’t consistently take the wrong approach to economic growth, says Moore.
“We could have even had a higher tide of growth in real GDP and wages if the Fed had been following his (and our) advice. He’s instinctively rejected the wrong-headed limits to a growth model that pervades modern economics—as do we.”
Powell received the nomination to become Fed Chairman to grow the economy, but he has failed this far, says Moore. Instead of allowing inflation to pick up in early 2018, Powell quickly took action to slow growth.
“In nominating Powell, Trump hoped that the new Fed chief would deliver a pro-growth monetary policy. Out of the gate, he got anything but.”
“In February 2018, the Fed foolishly squashed a robust, full-employment/rising-wages recovery because he bought into the Fed’s wrong-headed “Phillips Curve” thinking, which posits that growth and wage increases incite inflation,” says Moore.
Trump had previously stated that the Fed was fighting “phantom inflation” and Moore says the President was proven right. Fortunately, the Fed demurred to Trump and the economy came roaring back.
“Meanwhile, the stock market tanked and growth stalled out. Had the Fed not taken Trump’s advice and reversed course in early 2019, the economy would have capsized.”
While the Fed has promised this new course will result in higher inflation when needed, Moore isn’t sure how they will accomplish the task.
“Powell is not saying how he expects to hit his new, higher PCE inflation target when the Fed has not been able to hit the old, lower target despite (presumably) employing all of its “tools” — near zero rates and several trillion dollars of asset purchases.”
But Moore says he welcomes the new approach.
“The new mindset, if it sticks, is welcome news. We don't want runaway inflation by any means, but growth and people working don’t cause inflation – they combat inflation. More goods produced means lower, not higher prices.”
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