FED UP — Biden said today he will reappoint Federal Reserve Chair Jerome Powell, a move that keeps Powell in the government’s most powerful economic post as rising inflation spooks the country. Powell will likely face pressure from fellow Fed officials, some of whom believe the central bank should take aggressive action to stamp out rising prices, economics reporter Victoria Guida wrote today. How should not just Powell and the Fed, but the whole of the federal government, respond to rising inflation? Nightly’s Myah Ward asked economists for their ideas. These responses have been edited. “President Biden should continue his efforts to improve supply chains by, for example, increasing port capacity. He should take additional steps; the most important would be to reduce tariffs that are raising prices for Americans. “But none of this will do that much — to really make a big difference the Federal Reserve will need to do more. The Fed is the primary agency responsible for controlling inflation, and it needs to shift its communications, be clearer about caring about both unemployment and inflation, taper asset purchases more quickly, and set a default path of three rate hikes for next year.” — Jason Furman, economic policy professor at Harvard and chair of the Council of Economic Advisers under President Barack Obama from 2013 to 2017 “Biden needs to look like he’s trying to combat surging prices. That’s politics. But if his economists are correct, inflation will simply fade away. Already the impact of $3 trillion in stimulus is starting to wane. And there are hints global bottlenecks are beginning to clear. The mismatch between supply and demand might slowly be returning to balance. “But Biden shouldn’t assume all will be well in 2022. Rising inflation expectations suggest a non-zero risk that higher prices may prove sticky. “So first, no more stimulus, no new deficit spending bills. And be careful with calls to investigate Corporate America for raising prices. Political uncertainty could chill business investment, which the economy needs to boost productive capacity. Higher productivity is anti-inflationary. “Second, don’t let even a transitory crisis go to waste. Argue for anti-inflationary deregulation in pricey sectors such as housing, healthcare, and education. Examples: loosen restrictive zoning, let nurses do more, make colleges responsible when loan-burdened students don’t graduate. “Third, if inflation persists, the Powell Fed (assuming the Senate approves a second term for the current chair) will need to act. Biden needs to give the central bank his full support, both privately and publicly.” — James Pethokoukis, economic policy analyst at the American Enterprise Institute and author of the Faster, Please! Substack newsletter “We need federal policies that will help tackle the root causes of inflation: shortages that are the direct result of decades of disinvestment in our supply chains and the corporate extraction that has weakened our economy’s responsiveness to crises. “Policymakers must take on the extractive corporate actors that are getting rich off of people’s pain. This means cracking down on pandemic profiteers and price gouging, and taxing corporations and the wealthy. “The privatization of supply chains has resulted in a reliance on precarious labor that is a significant liability to supply chain resiliency. Shoring up the quality of jobs and addressing misclassification issues will not only help workers who move goods we all depend on, but also strengthen supply chains as a whole — creating a system that is able to withstand shocks.” — Rakeen Mabud, chief economist and managing director of policy and research, Groundwork Collaborative “First, the Federal Reserve should increase the pace of its taper of asset purchases and end the ambiguity about how long it will let inflation run above target to make up for past shortfalls. This would likely require a clear timeline for rate liftoff beginning in 2022. “Second, the federal government should address the stalled recovery in the labor force. This would include reintroducing work requirements into the expanded Child Tax Credit and other transfers, as was done in the 2017 expansion of the CTC. To incentivize continued labor force participation among older workers who left the workforce in 2020-21, the government could make the 2017 marginal personal income tax rate reductions permanent. I would avoid further large increases in fiscal transfers that merely fuel demand without raising supply. “Finally, the government should make permanent the full expensing of new business investment in equipment, and rule out corporate income tax hikes. This would help close the $1.8 trillion shortfall in business investment since the pandemic began, which constitutes a 1 percent hit to potential output. “Despite the focus on ports and supply chains, prudent monetary policy and fiscal policy that encourages labor force participation and business investment are ultimately much bigger issues.” — Tyler Goodspeed, Kleinheinz Fellow at the Hoover Institution at Stanford University and acting chair and vice chair of the Council of Economic Advisers under President Donald Trump from 2020 to 2021 “The whipsaw of shutdowns and restarts across economic sectors precipitated by Covid-19 remains the main driver of inflation. The virus led spending to rush away from services towards goods, and the Delta variant gummed up supply chains around the world. Virus containment remains the most important economic priority. “In the meantime, the Covid-19 inflation shock is being muffled, not amplified, by the labor market as average wage growth lags inflation. This has been tough on working families but means harsh medicine meant to stop wage-price spirals is not needed. The Federal Reserve’s decision to slowly reduce monthly asset purchases was prudent, providing a strong signal that inflation stability remains a crucial part of its mandate. But that’s enough for now.” — Josh Bivens, director of research at the Economic Policy Institute “The blunt way we conduct monetary policy — near-zero interest rates and large-scale asset purchases — artificially drives up asset prices, including real estate. This has the dual effect of increasing rents and compounding pre-existing wealth gaps in our society. The Federal Reserve would do well to embrace the spirit of its targeted pandemic-era innovations such as the Municipal Liquidity Facility and the Main Street Lending Program. On the fiscal side, extending targeted policies such as the enhanced child tax credit and the expanded earned income tax credit — as called for in the Build Back Better Act — would help families weather the continuing economic fallout of the pandemic.” — Demond Drummer, managing director, equitable economy at PolicyLink
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