A New Era at the Fed?

The metric at which we look in respect of the leadership of the Federal Reserve is the value of the dollar in terms of gold. By that measure the dollar lost a staggering 76 percent of its value during the years that Jerome Powell has been leading our central bank. The value of a one-dollar Federal Reserve note fell Thursday to a 5,441st of an ounce of gold from the 1,340th at which it was valued on the day Mr. Powell acceded to office. It could be called a default.We’re well aware — have no doubt — that the Fed itself doesn’t have a lot of concern for the value of its notes in terms of gold. Nor do the advocates of Modern Monetary Theory. In any event, the only Fed chairman under whom the dollar shed more of its value than it has so far under Mr. Powell was Arthur Burns. He was the Fed chairman during the collapse of the Bretton Woods system. On his watch the dollar’s value in gold plunged some 82 percent.Burns’ tenure offers a cautionary tale. At his swearing-in, President Nixon noted the ovation for Burns. Nixon called it “a standing vote of appreciation in advance for lower interest rates and more money.” Nixon pushed Burns to pursue policies that fueled the stagflation of the 1970s. That self-inflicted wound was later reversed by the policies of President Reagan and a successor of Burns, Paul Volcker, whose tenure proved how leadership matters at the Fed.On that head, it could be seen as a promising sign that Kevin Warsh suggests that the Fed’s policies need what he calls “regime change.” What stripe of reform would Mr. Warsh have in mind, though? A window into his thinking came in April when he criticized the Fed for its “mission creep.” The central bank, he averred, “has assumed a more expansive role” on “all matters of economic policy.” The implication is that the Fed needs to get back to its original mission.It’s hard to disagree with that appraisal, even if these columns quibbled that Mr. Warsh omitted to mention the word that was central to the Fed’s legislated purpose: gold. The Fed was formed in 1913 as a steward of the dollar, which, under the Gold Standard Act of 1900, was valued at a 20.67th of an ounce. An advocate in Congress of the Fed, Carter Glass, assured critics that the Federal Reserve Act “upholds the gold standard in every particular.”The emptiness of that vow was laid bare within 20 years when FDR abrogated the gold standard and devalued the dollar to a 35th of an ounce. Congress, too, bears some blame for the Fed’s failures to maintain the dollar’s value by imposing a “dual mandate” on the central bank. The Fed is required, under a Carter-era law, the Humphrey-Hawkins Act of 1978, to foster “price stability” as well as “full employment,” two goals that can prove contradictory. The same year, the International Monetary Fund, too, paved the way for the dollar’s debasement. At America’s urging, the IMF amended its Articles of Agreement to bar any role for gold in the world monetary system. Correcting these missteps will be critical to restoring the dollar’s value — and reversing today’s crisis of inflation and affordability. Sound leadership at the Fed could help advance the cause.

A New Era at the Fed?

A New Era at the Fed?

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