Nick Timiraos, writing in Friday’s Wall Street Journal, is concerned with messaging from Federal Reserve Chairman Jerome Powell to President Donald Trump—is Powell being too subtle, or does he need to answer more explicitly, Trump’s often heated admonishments? Timiraos is concerned particularly against the backdrop of the often deprecatory nature of Trump’s opprobrium.
This is headed into a cul-de-sac, though.
The question of Fed messaging—to Trump or anyone else—shouldn’t even come up. The Fed’s role is to maintain stable pricing, full employment, and low interest rates.
Accordingly, the Fed Chairman and members of the BoG should stay out of politics. The Fed does its job by setting its benchmark rates at levels historically consistent with its target annual inflation rate of 2%—two of its mandated tasks. Full employment falls out of that.
Having done that much, the men of Fed governance need to sit down and be quiet, accepting that free market forces will cause all three of those goals to fluctuate—and self-correct—except in the most extreme conditions.
All of that precludes, or should preclude, the Fed members from chasing stock/bond markets—and international trade activity, which is much more about foreign policy—politics—than it is about economics.
Powell also is on the wrong path, though, when he says,
The thing we can’t address, really, is what businesses would like, which is a settled road map for international trade. We can’t do that. We don’t have that tool[.]
It’s a tool the Fed doesn’t need. What businesses need is a stable domestic economic environment. A stable political environment, both domestic and international, would certainly be useful, too, but that’s a…political…environment and up to the political arms of government to generate. It’s outside the purview of the Fed.
It’s especially not the Fed’s job to counteract the foreign policy moves of the Executive Branch.