What will Yellen pass on to Powell?
…an economy growing at potential with low inflation but also a large balance sheet of low-yield long-maturity assets.
Janet Yellen: Performance Review
By: Stephen Williamson – St. Louis Fed
The need to hit the brakes
Adding fuel to the overheating risk has been President Trump’s recent large unfunded tax cut. This cut must be expected to provide a significant boost to an economy that is already very close to full employment and that is being boosted by unusually easy financial conditions. Yet strangely, Yellen’s Federal Reserve has not reacted to the tax cut by revising its interest rate path upward. This leaves Powell with the unenviable choice of having to accelerate the pace of interest rate hikes to avoid an unwanted rise in inflation, or else he will face the fury of the bond vigilantes when the first signs of rising inflation emerge.
Jerome Powell’s poison chalice
By: Desmond Lachman – American Enterprise Institute
…but the Fed’s no-brake regime dates back to 1994 after the Great Bond Massacre.
The Fed Can’t Drive Right Without Brakes
By: Narayana Kocherlakota – University of Rochester
The need to defend the Fed’s independence
In these distrustful times, the central banker’s most important task is to explain — and educate. Congress and the political class more generally must be persuaded that the Fed needs certain powers to manage the economy and handle crises, and that there are limits to the Fed’s freedom. “Constrained discretion” is the right approach, but this idea needs to be further developed and then defended.
An Open Letter to Jerome Powell
By: Marvyn King – Former Governor of the Bank of England
