Biden should follow Carter’s lead, not Elizabeth Warren’s, in nominating Federal Reserve vice chair
Tiana Lowe
Despite inflation initially falling from the near double digits last June through the end of the year, inflation is three times higher than what the Federal Reserve considers acceptable, and it is evidently rising. Between the Fed’s preferred inflation measure skyrocketing last month and the persistently overheated job market, Chair of the Federal Reserve of the United States Jerome Powell has made clear that not only will the central bank not slash interest rates any time soon, but they also have a ways to go with hiking rates.
Naturally, Sen. Elizabeth Warren (D-MA) has a plan to pressure the Fed — an institution designed for independence from politics — to make our current stagflationary state permanent.
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As you may recall, President Joe Biden created a crucial vacancy over at the Fed, tapping vice chairwoman Lael Brainard to Director of the National Economic Council. Brainard, the most extreme dove at a central bank chaired by an increasingly hawkish Powell, is arguably a better fit back in a political post, as she was during the Obama administration.
Naturally, Warren wants to use the worst inflation in 40 years to turn the money printer back on.
“If the Fed keeps pushing these extreme interest rate hikes, they can tip this whole economy off an economic cliff,” the Massachusetts senator said this week. She previously opposed Biden’s renomination of Powell, who she said “has made clear that he will take extreme steps on interest rates and he’s willing to put millions of people out of work.”
A certain class of progressives has considered the experiment of the past 15 years — from near-zero interest rates despite the longest bull market in history, quantitative easing doubling our money supply from 2008 to 2020 and then expanding it by another 41% from 2020 to March 2022 — a categorical success. Warren, a de facto adherent of
Magical
Modern Monetary Theory, believes that the Fed has not a dual mandate but a sole political job in pursuing the ephemeral goal of “full employment.”
Consider that both the Fed and the federal government worked in tandem to try and achieve this, and the result has been the worst cost of living crisis in nearly half a century and employers resorting to illegal child labor to offset supply shortages.
Rather than listen to Warren, who would happily tank Biden’s reelection odds if it gave her a second shot at the Oval Office, Biden should consider his oldest living predecessor. During the worst of the stagflation of the ’70s, then-President Jimmy Carter intentionally plucked Fed Chairman G. William Miller to run the Treasury Department, creating a crucial void, just as Biden has. Carter replaced Miller, a dove that Warren would love, with Paul Volcker, a Nixon admin alum who presciently warned the Republican president against blowing up Bretton Woods and the gold standard. Volcker did what was right in the long term, not what was easy in the short term, ultimately killing the worst inflation crisis in the existence of the central bank.
Unlike the case of Carter, the nomination of an apolitical hawk — beyond being the correct thing to do — would also ultimately help Biden’s reelection odds, not harm them.
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The inflation rate and unemployment rate were twice as high in 1980 as they are now, and to kill inflation with long-term real interest rates, the Fed will likely only have to keep rates at 6%. That is still well below the average federal funds rate prior to failed QE experiment of 2008 to 2022. Consider that our current federal funds rate, which has Wall Street and Warren alike positively apoplectic, is still below the average federal funds rate from 1971 through 2022.
Jerome Powell is doing the hard job for Joe Biden, who continues to spend to his party’s delight. He might as well let Powell continue to do so with an assist from a serious monetarist, not a political hack who will allow inflation to rebound and ultimately cost him reelection.