The Fed Should Correct for Overconfidence in Its Review
It wasn’t just a flexible approach to inflation targeting that led the central bank astray in recent years. It was hubris, too.
Changing times: Fed Chair Jerome Powell and former Chair Ben Bernanke
Photographer: Jim Watson/AFP via Getty Images
In a speech Thursday, Federal Reserve Chair Jerome Powell hinted that the central bank’s five-year framework review will focus on the particulars of its maximum employment and stable price goals, as well as efforts to communicate clearly with the public. In both cases, the Fed should be guided by humility in the face of uncertainty.
The potential fracturing of the globalized trading system and a return to 1930s-style tariffs are developments that are expected to boost consumer prices and hurt growth in the US, but the propositions haven’t been tested in nearly a century. It’s impossible to know for sure whether price or growth effects will dominate — or whether some unforeseen third outcome will materialize.