Jerome Powell would not have been my first pick for Federal Reserve Chairman. First, he is a lawyer rather than economist. He became an investment trader and is a Wall Street insider. Second, he is a life long Republican who served in the Bush administration. However, when one looks at his handling of monetary policy, I have to admit I think he has done a good job.
Managing the Money Supply
We are entering the 10th year of economic expansion. This is the longest economic expansion in US history. Albeit, there was initially slow growth as we pulled out of the recession. During the recession and the slow turn around, the Federal Reserve pumped cheap money into the economy. As shown below, they set the interest rate between 0 and ,25 percent between 2010 and 2015. As the economy improved, the Federal Reserve began increasing the rate slowly starting in 2016. By the time Trump became president the economy was humming along. and unemployment had fallen to 4.7 percent (BLS) by the end of 2016.
Over Stimulating the Economy
President Trump inherited a good economy which he chose to further simulate through a large tax cut. This further stimulated demand and Gross Domestic Product (GDP) grew from just shy of 2 percent to over 3 percent as shown below. In turn, unemployment fell to 3.7 percent (BLS).
However, stimulating an already hot economy has negative consequences. It puts pressure on prices and exacerbates the inevitable downturn, As shown below, the pressure on inflation started in 2015 and has continued. But, it has been in check as the Fed has been raising interest rates to cool the economy down.
Inflation
the Fed is SUpposed to be Apolitical
Powell has taken the prudent action of continuing to contract the money supply by raising interest rates. He has done this in small increments so as not to shock the economy. It will likely cool the economy down but at this point this is a good thing,
The Chairman of the Federal Reserve is intended to be an apolitical position. The idea that Trump is trying to fire him is very concerning and another example of his grab for power. He wants to keep the economy hot even though it will create problems down the road (large debt and inflation). But Trump’s view is that future problems will be another president’s problem. He has no ability to think about the long run or the big picture. We need to protect the Chairman of the Federal Reserve and, in turn, our economy.
Very well said, if a bit apologetic. Explain?