Who’s Afraid of Judy Shelton?

Inflation? What inflation? That’s the latest insight from Nobel laureate Paul Krugman, who reckons “the war on inflation is more or less over, and we won.” Never mind that the latest numbers show that annual inflation in November galloped ahead by 3.1 percent, some 50 percent higher than the Fed’s target, and core prices were up 4 percent. Mr. Krugman’s priority is helping President Biden get re-elected, and “Fed rate cuts will help him with that.” Mr. Krugman is even more worried that the Fed might hold back on cutting rates — by, say, waiting for inflation to fall to its target rate of 2 percent — because the central bank will be frightened by “Trumpist attacks,” as the economist puts it. “I hope Fed officials understand,” Mr. Krugman pleads, “that they’ll be betraying their responsibilities if they let themselves be intimidated this way.” It would mean “politics, not economics” is driving policy, he frets.After this attempt to manipulate central bank policy in the interest of Mr. Krugman’s preferred candidate for 2024, the Times star goes on to grouse that he just knows President Trump will condemn the Fed because “Trump and his allies constantly engage in projection” and “MAGAworld,” as Mr. Krugman calls it, “sees sinister conspiracies everywhere.” We’re a newspaper, not a psychologist, but let’s just say that strikes us as a bit paranoid.Mr. Krugman’s anxieties are even more perplexing considering the fact that the central bank hardly appears to be hesitant about cutting interest rates. The most recent comments by the Fed chairman, Jerome Powell, suggest an eagerness to cut rates even before inflation falls to the Fed’s target level. “The reason you wouldn’t wait to get to 2 percent to cut rates is that policy would be too late,” Mr. Powell told the press in December.Mr. Powell’s fervor to cut rates certainly comports with the cautionary words in our pages of economist Judy Shelton on December 4. “The Big Tease,” is the way the headline opened over her op-ed piece, “Will the Fed Enter the Fray as the 2024 Election Draws Near?” She reported on predictions that the Fed could lower rates by September. She also asked, in her inimitable way and ahead of the curve, whether this could be “utilized to achieve political ends.”Ms. Shelton notes that “the presumption of independence between the actions of the nation’s central bank and the economic agenda of the White House” makes it “crude to ask” whether Mr. Powell et al “could end up choreographing an economic boost that serves to help the incumbent presidential candidate.” Mr. Krugman, on the other hand, has no such qualms about pushing for such a course. He makes Ms. Shelton look like a prophet.Casting aside the headline inflation numbers from the Labor Department, and Mr. Powell’s own warnings that inflation “remains over our longer run goal of two percent,” Mr. Krugman demands cuts pronto. He notes that “the core personal consumption expenditures deflator” is rising at but 1.9 percent, while unnamed “more complex measures are close to 2 percent.” In short, Mr. Krugman is crowing, “Mission Accomplished.”Yet the risk of declaring a premature victory over inflation militates against a rush to cut interest rates in order to grease the skids for Mr. Biden’s re-election bid. Feature the economic news just the other day from the Continent, where inflation rebounded in December after seven months of declines. The jump in prices there “fueled debate over how soon interest rate cuts could be expected from the European Central Bank,” the Associated Press reported.It’s not hard to imagine such an outcome here, especially if rates get ratcheted down before inflation is vanquished. That said, one can sympathize with Mr. Krugman’s fears of the Fed putting politics ahead of economics. If he’s looking for a monetary regime that can prevent inflation without favoring one candidate over another, why not adopt the apolitical system that, between 1879 and 1913, held price increases to 0.1 percent a year on average? That’s the gold standard.Correction: “Utilized to achieve political ends” is how Judy Shelton phrased the concern about the Fed’s possible decision to lower interest rates during an election year. Owing to an editing error, Ms. Shelton’s phrasing was given inaccurately in the bulldog.

Who’s Afraid of Judy Shelton?

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