JD FOSTER: The Fed Lags Again As Bessent Seeks An Open Minded Successor
With the focus on the Federal Reserve cutting the funds rate again on Wednesday, we’re reminded of Chair Jay Powell’s Trumpian sobriquet of “too late Jay,” that he exits in May, and that Treasury Secretary Bessent is…
With the focus on the Federal Reserve cutting the funds rate again on Wednesday, we’re reminded of Chair Jay Powell’s Trumpian sobriquet of “too late Jay,” that he exits in May, and that Treasury Secretary Bessent is actively vetting his replacement. Amen.
Bessent says he seeks an individual with an open mind, which is great, but a second essential is having a well-grounded monetary philosophy. It’s not enough to be on Trump’s team. It’s not enough to be well-spoken and a “good guy.” The Fed Chair really has to know his or her stuff.
Having an open mind should mean accepting that neither the new Fed chair, nor the Fed Board, nor the consensus counsel of the Fed’s group-think economists fully understand how the economy works much of the time.
Newsflash: Economists don’t know everything, and much of what the consensus thinks it knows is wrong.
We’re not talking about the micro foundations of economics, which are rock solid. We’re talking about the macro economy and the operation of monetary policy.
Want proof? Remember the consensus view regarding Biden’s temporary inflation? Remember the confident consensus predictions of recession when the Fed awoke to the soaring inflation problem? Remember the consensus that President Trump’s tariffs would reignite inflation and cause a recession? Wrong, wrong, wrong.
A Fed chair needs many talents to succeed. In addition to an open mind, he or she needs executive ability as they are also the de facto CEO of an enormous institution.
The next chair should firmly believe the Fed has become foolishly enmeshed in tangential matters and should return to its core mission of setting proper financial conditions to meet the dual mandate of low unemployment and low and stable inflation.
A successful Fed chair also needs enormous patience as they have to appear before Congress and listen to members ask horrifically stupid questions. Though sorely tempted, the Fed Chair cannot in response simply quote the famous line from the original Saturday Night Live – “Jane, you ignorant slut.”