Federal Reserve chairman Jerome Powell made the understatement of the year on Wednesday when he casually remarked to reporters, “Obviously people don’t like inflation.”
And how.
According to Fox News’ latest national poll, 41 percent of registered voters said “inflation and higher prices” were the main issue affecting their voting decision in November. Only 12 percent of voters named guns their top priority, the number second. Seventy-one percent disapproved of President Biden’s work on inflation.
This is not exactly a vote of confidence in the federal government. In the past, this level of public discontent has typically led to major political unrest.
Nor do they seem to give much credit to the government for an unemployment rate that has fallen to 3.6 percent, just a touch above prepandemic levels.
The Fed is arguably Biden’s best hope. After the Federal Open Market Committee announced Wednesday it would raise short-term interest rates by three-quarters of a percentage point, Powell said the Fed’s goal was to bring inflation closer to its 2 percent target while keeping the labor market “strong.” †
He hastened to add: “We are not trying to create a recession now. Let’s be clear about that.”
‘Elections that destroy democracy’
But some commentators, especially David Frum of The Atlanticare beginning to worry that in an effort to tame inflation, the Fed will do just that: start a recession, just in time to damn Biden or anyone else by nominating Democrats in his place in 2024.
Understanding inflation and how it affects you
Frum pointed to the historically close connection between economic growth and a president’s chances of reelection. Citing the possibility that an unrepentant Donald Trump will run again, he argued that a downturn this year or next could result in “a democracy-destroying election next year.”
He concluded: “So the Federal Reserve has a more-than-usual obligation this week to measure its policy appropriately. A monetary policy miscalculation in 2022 could reverberate through the long centuries of American history ahead.”
The Fed’s Relationship With Politics
Let’s put aside the fraught question of whether Trump’s re-election could spell the end of American democracy. Does the Fed, in fact, have an “obligation” to consider how its actions might affect the US political system?
On a simple reading of the law, not really. The Federal Reserve Act empowers the Fed to regulate the country’s money supply, promote the “long-term potential” of the US economy, and advance the goals of “maximizing employment, stable prices and moderate long-term interest rates.”
Frederic Mishkin, a former member of the Fed’s Board of Governors, no doubt spoke for many in the financial world when he wrote in an email: “I strongly disagree with the view that the Federal Reserve should change its policy. to every politician.”
He added: “The Fed should be as apolitical as possible and its policy focus should be on stabilizing both inflation and output volatility, as required by congressional law.”
But it’s hard to separate the Fed from its historic roots, founded in an era of great political turmoil, driven by frequent financial panics.
The Fed was successfully established in 1913 because President Woodrow Wilson won the assent of William Jennings Bryan, the most influential populist leader of the time, by guaranteeing that government officials appointed by the president, not private sector bankers, would would lead to governance.
Frequently asked questions about inflation
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual price change for everyday goods and services such as food, furniture, clothing, transportation, and toys.
At Bryan’s urging, the Fed was also decentralized into 12 regional “reserve banks” to mitigate the influence of New York financiers and promote lending to farmers across the country.
“It’s certainly embedded in the Federal Reserve’s original idea that it should respond broadly to citizen needs,” said Eric Rauchway, a history professor at the University of California, Davis and the author of “Why the New Deal Matters.” ”
The Fed came of age between the two world wars — a period dominated by the determination of political and economic leaders on both sides of the Atlantic to halt the rise of communism on the left and fascism on the right. And while the central bank is largely responsible for the 1929 stock market crash and the ensuing Great Depression, monetary policy was an integral part of that effort.
What would Keynes do?
One of the intellectual giants of the interwar period was John Maynard Keynes, who was driven by his quest to prevent another global conflict and authoritarian figures like Benito Mussolini in Italy and, closer to home, British fascist leader Sir Oswald Mosley, to stumble.
“All his views on economics are constructed inversely from his views on politics,” said Zachary Carter, the author of a biography of the famous British economist.
Keynes first became known for “The Economic Consequences of the Peace,” his 1919 book in which he warned that the harsh terms of that year’s Treaty of Versailles would sow the seeds of dictatorship and future wars.
In 1922, writing from a disastrous post-war reconstruction conference in Genoa, Italy, Keynes predicted that if Europe’s growing militarism were left unchecked, “sooner or later an economic illness will spread, ending in some variant of the delirium tremens of revolution.”
That was six months, Carter noted, before Mussolini’s blackshirts marched on Rome.
In the 1930s, the main economic problems were unemployment and deflation — and the architects of the New Deal, including Keynes as a close confidante of President Franklin Delano Roosevelt, sought to alleviate both by boosting inflation. Roosevelt, by amending the Agricultural Adjustment Act of 1933, secured a degree of presidential authority over monetary policy that would be unimaginable today.
One of Roosevelt’s advisers, Rauchway said, told the president he faced a stark choice: “A rise in prices or a rise in dictators.”
What to read?
In its third hearing this afternoon, the House Committee investigating the Capitol riots provided evidence that Donald Trump had been told his plan to undo the 2020 election was illegal, but he pressured Mike Pence to do so. nevertheless agreeing, causing a violent mob against him when he refused to comply. Read the latest updates.
The gallows erected in front of the Capitol, where rioters chanted “Hang Mike Pence,” was one of the most chilling images of a day of violence. Catie Edmondson explores the mystery and meaning of the ominous structure.
Some Democrats are pursuing a hugely risky strategy: promoting far-right candidates in the GOP primaries in the hopes that extremists will be easier for Democrats to beat in November. Jonathan Weisman explains.
— Blake
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