We’ve been justifiably critical of the Federal Reserve for over a year now, and long-time readers know that while DKI regularly engages on policy, we don’t take political positions. Still, we’ve noticed an interesting pattern and thought it was worth pointing out to you.
Austan Goolsbee, who was an economic advisor to President Obama, is going to take over the Chicago Fed and will have a vote on setting interest rates. Many political observers on the right would potentially be critical of Mr. Goolsbee. The negative stereotype of a Democratic economic advisor is to be excessively dovish meaning they favor lots of inflation-causing money printing and low interest rates. To that end, Mr. Goolsbee asserted in 2021 that inflation was being caused by supply chain issues and not massive money printing by the Fed. We disagree with that notion.
Recently, Mr. Gooslbee said that inflation isn’t slowing as quickly as expected and that it might not recede as quickly as many hope. This has been a core DKI belief since November of 2021. In addition, he’s also acknowledged that the recent financial relief programs were too large. Given massive inflation caused by too much government spending, we agree with that opinion.
Lael Brainard was another Obama appointee who became Vice Chair of the Federal Reserve earlier this year. While she had a (partisan) reputation as another ultra-dove, since taking her current position, she’s recognized the disaster of too-high inflation and has consistently supported interest rate hikes. DKI agrees with this policy.
In contrast, Jerome Powell was a lifetime Republican who was appointed to lead the Fed by President Trump. Powell has acknowledged that he was slow to respond to rising inflation and should have started raising rates sooner. In other words, the “Republican hawk” was too dovish and should have been more of a fiscal conservative.
It is my personal belief that the Fed is a detrimental institution and that the market should set the rate of interest (otherwise described as the price of time and risk). We should eliminate the Federal Reserve entirely.
Given that that isn’t going to happen, we’d like to offer a note of praise for the Fed Governors who have let go of partisan leanings (on both the left and the right) and are improving policy in a way that benefits the American people. I’m sure many readers would like to see other branches of the government do the same. While the Fed is a quasi-political institution, its recent and coming appointees are acting in a non-political manner to the benefit of all of us.
We’ve mentioned this previously, but we still think Judy Shelton should have been seated at the Fed. If you value intellectual diversity, having one hard money advocate at the institution would have been a benefit.