Guess Who’s Worrying About the Fed’s Dual Mandate

A new critic of the Federal Reserve’s dual mandate is emerging, and wouldn’t you know if it isn’t the Fed chairman himself, Jerome Powell. The dual mandate is Fed shorthand for the hard-to-achieve — some say incoherent — two-headed goal, mandated by Congress, for the central bank to reach both “price stability” and “full employment.” Mr. Powell is griping that the Fed faces a “very challenging” situation with “the two goals in tension.”Now he tells us. Confronted with uncertainty over the fallout from President Trump’s tariffs and rising fears of stagflation, Mr. Powell laments that “we haven’t faced the question of two goals in tension in a long time,” but “we have to keep it in our thinking now.” In remarks after the central bank held its benchmark policy interest rate flat last week, Mr. Powell marks the risk of “a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”The complaint from Mr. Powell marks a change in tone from the central bank chief, who in the past was hailed by the Times for eschewing jargon like “dual mandate.” Shortly after he took the job in 2018, the Times praised the “new chairman” for trying “to communicate directly and transparently to the public.” At the time, Mr. Powell explained that “Congress has assigned us very important jobs. And, you know, maximum employment, stable prices.”After years in which “Federal Reserve chiefs were long known for saying little, and making what they did say as opaque as possible,” the Times reported, Mr. Powell’s apparent candor seemed to mark a new era. “Was This a Fed Chief Talking?” the Gray Lady marveled. Amid the current uncertainty, though, Mr. Powell opened his latest press conference by insisting that the central bank is “squarely focused on achieving our dual mandate goals.”Could it be that the chairman is coming around to the view of many Fed critics that the central bank would be better off focusing on one of these two objectives, by turning its attention to honest money? If so, that would only be returning to the central bank’s historic mission — a goal that was recently underscored by a former Fed governor, Kevin Warsh, who is being touted as a possible replacement for Mr. Powell when his term expires next year.Mr. Warsh scored the central bank’s insistence on asserting “a more expansive role,” he says, “on all matters of economic policy,” despite its lamentable track record. The Wall Street Journal summed up Mr. Warsh’s remarks as a warning against the Fed’s “mission creep,” which has taken the central bank far afield of its original goal of achieving a stable currency. In the Fed’s defense, though, it’s Congress that helped lead the central bank astray.That’s in part because of a piece of legislation that President Carter and the Democrats in Congress pushed through in 1978, the Full Employment and Balanced Growth Act, or Humphrey-Hawkins for short. Back then, even the Times’s editorial columns reckoned that the law offered a “hollow promise” — and even a “cruel hoax” — by setting up the central bank to over-promise and under-deliver. The bill, the Times warned, would “legislate wishful thinking.” Nearly 50 years later, Mr. Powell has to bridge the gap between Congress’s unrealistic ambitions and economic reality. He proposes a kind of pirouette between the two aims of the dual mandate. “We could consider how far the economy is from each goal and the potentially different time horizons over which those respective gaps would be anticipated to close,” he muses, in a reversion to the kind of FedSpeak that has long bedeviled critics of the central bank. The burden of the dual mandate that began with Humphrey-Hawkins makes it hard to focus on keeping prices stable. That’s hardly a new problem for the central bank. When it was founded its backers vowed that it would maintain the dollar’s convertibility into gold per the terms of the Gold Standard Act of 1900, at a 20.67th of an ounce. Today the dollar fetches less than a 3,200th of an ounce. That collapse in value is the key challenge facing the Fed and the Congress that created it.

Guess Who’s Worrying About the Fed’s Dual Mandate

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