Debate on Inflation Could Start With Biden’s Nominations to Federal Reserve

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Could President Biden’s nomination of Jerome Powell for a second term as chairman of the Federal Reserve open the way to a national debate about inflation? This is only partly because Mr. Powell has presided over America’s central bank during the period in which inflation suddenly emerged as the country’s biggest economic problem — and now will figure in Mr. Biden’s signature tax and spending plans.

With inflation rates running at a 31-year high, the vanishing dollar seems to have caught the White House by surprise — and Democrats are now blaming corporations for allegedly engaging in price gouging. Just this week, Mr. Biden claimed that anti-competitive behavior in the oil and gas industry was, as the Washington Post reported it “leading to higher prices for drivers at the pump.”

“The White House is working to make clear inflation is not happening for organic reasons,” said executive director of the American Economic Liberties Project Sarah Miller, “it’s happening because it’s profitable for enormous corporations to raise prices on consumers.” The Post noted that her views had been made clear to the Biden administration.

That demarche, though, points to a debate with Republicans over the nature of inflation itself, whose economists tend to see inflation as mainly a monetary phenomenon. They are likely to be less inclined to blame corporations (or even labor unions) than America’s central bank itself. The Federal Reserve had spent recent years trying to get inflation higher and closer to the Fed’s goal of 2%.

Nor will the White House itself be able to stand back from this fray, given the warnings from a number of leading Democrats. As far back as February, President Clinton’s former treasury secretary, Lawrence Summers, warned that the deficit-financed $1.9 Trillion “Covid relief” bill would “set off inflationary pressures of a kind we have not seen in a generation.”

At the time, White House advisors ignored Mr. Summers’ views. With the expected inflation having arrived, Mr. Biden is clinging to his faith in fiscal intervention to cure the nation’s woes. His latest claim is that the $1.2 trillion infrastructure law signed this week will lower the inflation rate. As Larry Kudlow has marked, “outside the White House” there “is no living human being that agrees with this view.”

While blaming inflation on corporate price-gouging, moreover, the administration is seeking to fund its Build Back Better bill in part through business tax increases — costs that would be passed on to consumers. Plus, Mr. Biden will promote to vice chairman of the Fed a left-of-center central banker, Governor Lael Brainard, who is prepared to see the Fed use its regulatory power to “fight climate change.”

Ms. Brainard would replace Richard Clarida, whose term on the board ends in January. She was favored by progressives to take over as chairwoman, and her elevation to the second spot can be seen as a way of placating the left. Mr. Biden has more opportunities to reshape the Fed in ways more to the liking of progressives and others who tend to be in the inflation camp.

Randal K. Quarles recently announced he will resign from the Board of Governors at the end of the year, ten years before the scheduled end of his term. Quarles’ deregulatory approach to banking angered progressives, and in a May hearing Massachusetts Senator Elizabeth Warren told Quarles, “our financial system will be safer when you are gone.”

So with Messrs. Clarida and Quarles departing and a seat already vacant, Mr. Biden has a chance to fill three of the seven seats on the Fed board. These openings give Mr. Biden the opportunity radically to change the character of the Federal Reserve Board, enabling it to use its monetary and regulatory powers to push progressive causes.

All of Mr. Biden’s nominees to the Fed, though, will have to go through confirmation hearings. Hence the opportunity for a national debate on inflation. It could set the stage for a wider political discussion and, if the Fed fails to get inflation under control, it will play a central role in the 2024 presidential election.

The Democrats may again have to defend inflationary policies. The most famous such contest was 1896. Nebraska Democrat William Jennings Bryan, stood on a platform of inflation via the free coinage of silver. At the convention in Chicago he boomed of William McKinley and the Republicans, “You shall not crucify mankind upon a cross of gold.” It wasn’t the only issue in the election, but it was the big one. Inflation lost.


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