Congratulations, Jerome Powell. Inflation must be your top priority now

One of my favorite sayings is "growing old isn’t so bad when you consider the alternative."

That’s my attitude -- apparently shared by many on Wall Street -- on the Biden decision to reappoint Federal Reserve chairman Jerome Powell to a second term. Powell gets a C+ grade as Fed chairman, but he is far preferable at the helm than the candidate who came in second place, Fed board member Lael Brainard.  

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Powell’s performance at the Fed has been erratic. On the one hand, he gets high marks for presiding over one of the great bull markets in world history. 

But real growth of the economy and real incomes have grown at a subpar rate because of his herky-jerky monetary policies. He steps on the brakes and then presses the accelerator of monetary policy at the wrong times. That is because he appears to be making up the rules as he goes along rather than sticking to a rules-based monetary policy.  The latter is what the nation desperately needs.

The pattern has been over the last three Democratic presidents to reappoint Republican Fed chiefs. Why? Because Americans don’t trust Democrats when it comes to having their hands on the money supply. And for good reason.

This has led to costly mistakes. In 2018, he was WAY too tight for way too long after a series of interest rate hikes, which nearly plunged the U.S. economy into a recession at the end of that year. Investors may recall that GDP growth and the stock market collapsed in December of 2018 and it wasn’t until Powell had to admit his errors, and reverse the deflationary effects of those rate hikes that the economy surged in 2019 with massive real income gains for Americans.

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Then in 2020 he helped steer the economy away from a depression during the pandemic, but he allowed prices to crash in the second half of the year.  This severe deflation slowed the recovery and may well have cost Trump the election. Commodity prices fell by more than 50%.  (I have been a longtime advocate of using the CRB commodity index as the guard rails for whether interest rates should rise or fall.)

Worst of all, now the Fed has been way, way behind the curve in stopping the stampede of inflation that is shrinking pay checks for Americans with low or fixed incomes.  The inflation rate has tripled from 2 to 6.2% -- and, sorry Mr. Powell, it sure doesn’t look "transitory" to us.   

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That said, Powell was a safe and wise bet for Biden. The pattern has been over the last three Democratic presidents to reappoint Republican Fed chiefs. Clinton reappointed Alan Greenspan.  Obama reappointed Ben Bernanke.  Why? Because Americans don’t trust Democrats when it comes to having their hands on the money supply. And for good reason.

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America appears to have dodged a bullet here. Brainard would have been a potential disaster. She was favorably inclined to the lame-brained idea of adding climate change and gender equity issues to the Fed mandate.  What do central bankers have to do with climate change?  The Fed must stick with what should be its sole mission, which is price stability.  Anything that steers the Fed from that mandate is risky to our financial stability. 

So congratulations to Mr. Powell for his appointment to a second term. Now get inflation under control, pronto. You don’t want to go down in history as the Fed chairman who sunk the American economy in a sea of rising prices.   

Stephen Moore is a senior fellow at FreedomWorks and a co-founder of the Committee to Unleash Prosperity. He served as a member of President Trump’s economic recovery task force.