Fed’s Job Would Be Easier With Smarter Fiscal Policy
Automatic stabilizers and a non-partisan fiscal council could help public borrowing respond more effectively to business cycles.
Powell’s done his job. Now you do yours, only smarter.
Photographer: Nathan Howard/Bloomberg via Getty Images
Federal Reserve Chair Jerome Powell briskly dispensed with the idea of raising the central bank’s inflation target in his speech at the Jackson Hole conference last week. But the idea isn’t going away. It has influential supporters, and they make a strong case. What’s more, they might get their way even if the Fed denies that’s what is happening. The central bank could raise the 2% target tacitly while insisting it has done no such thing. This might, in fact, be the likeliest outcome.
It would be a pity. The better answer is to keep the 2% target and strive to hit it while acknowledging the limits of what the Fed can do on its own. Bringing fiscal policy to bear is the key. If that could be done less haphazardly, the central bank’s job would be easier and the costs of keeping inflation in check would fall.