Congress doesn’t understand that too many job openings and too much capital are the problems
Tiana Lowe Doescher
Video Embed
Jerome Powell‘s testimonies before Congress are usually fascinating not because of the carefully crafted responses given by the Federal Reserve chairman but rather the insight we garner from the questions of our elected representatives. The House Financial Services Committee’s semi-annual sitdown with Powell was no different. And it seems that more than two years into the worst inflationary cycle in 40 years, Democrats and Republicans seem to believe that too many job vacancies and too much credit are points in favor of economic stability, not the problems plaguing them.
Powell was one of the only people in the room to try and redirect attention to one painless tool for inflation abatement: the labor force participation rate.
SWEETHEART HUNTER PLEA IS GIFT TO BIDEN AND TRUMP
“There are some signs that supply and demand in the labor market are coming into better balance,” Powell said, noting that the 2-1 job vacancy-to-unemployment ratio has fallen closer to 1.6-1. “The labor force participation rate has moved up in recent months, particularly for individuals aged 25 to 54. Nominal wage growth has shown some signs of easing, and job vacancies have declined so far this year. While the jobs-to-workers gap has narrowed, labor demand still substantially exceeds the supply of available workers.”
The part left unsaid here is that while 6 in 7 prime-aged adults are in the workforce, fewer than 2 in 3 adults aged 55 to 64 — that is, before the federal retirement age and more than a decade younger than the national life expectancy — are employed or looking for a job. Rather than ask how Congress can induce these millions of missing boomers back into the workplace, both parties played their parts.
Democrats whined about the Fed refusing to address climate change and racial equity (Powell eagerly and frequently admitted that “other agencies are better suited to address these issues”), while Republicans raged against the Fed’s vice chairman for supervision for considering increasing some banking capital requirements.
It remains to be seen exactly what the vice chairman eventually proposes and whether it is sound, considering that the Fed’s reserve ratio requirement has remained at zero since the start of the pandemic. Reserve ratio requirements are as much a legitimate tool of monetary policy as setting the federal funds rate, and effectively eliminating the ratio requirement was arguably as reckless as the rest of the Fed’s pandemic-era responses. The only difference is whereas the Fed has ramped up rates and unwound its balance sheet — Powell conceded on Wednesday that the balance sheet needs to “not just grow every cycle” and will ideally be “smaller than now in the future” — it has maintained a reckless lack of capital requirements.
Similarly, if Democrats want best to represent the nation’s youngest and least affluent, they need to applaud the Fed’s efforts to stop inflation specifically by bringing would-be retirees back into the workforce.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
“That’s a way that the labor market can become less tight without having the unemployment rate go up,” Powell pointed out when asked about (legal) immigration. But bringing resident boomers back into the workforce has the secondary bonus of not just reducing inflation directly through increased supply, but also by reducing Social Security outlays, which are already taxed to the tune of the program hitting insolvency without the decade.
On Thursday, Powell heads to the Senate. While the upper chamber pretends to be more serious, we’re close enough to the 2024 election cycle that day two of questioning will surely be even stupider.