Photo by Artem Beliaikin on Unsplash Production of boiler chickens (those raised for their meat, not eggs) in the US...
Podcast: The Fed’s New Approach to Inflation and Monetary Policy
In this episode of the Econ Café 2020/21 podcast, Michael Mandel and Sean Flynn explain Fed Chairman Jerome Powell’s speech on New Economic Challenges and the Fed’s Monetary Policy Review. They discuss the Fed’s new approach to inflation and monetary policy, and how it matters to economics students. Historically, the role of the Federal Reserve is to take away the punch bowl when the party was getting good. That means as the economy heats up, the Fed raises interest rates to make sure that the inflation doesn’t get out of control. In his speech, Powell implied that the Fed wouldn’t take away the punch bowl so fast this time
Powell wants to encourage consumers to spend, businesses to invest and banks to lend in order to get out of the Covid recession. And he is willing to accept a bit more inflation to do that. Then we talked about the possibility that Chairman Powell could be a bit too successful and encouraged too much inflation. Sean told a story about growing up in the 1970s and seeing goods in the supermarket having to be relabeled multiple times because of the very fast price increases.
Could this happen again? after all, the federal government is running huge budget deficits and the Fed is pumping large amounts of monetary stimulus into the economy, both of which can lead to more inflation. And we can’t necessarily count on the forces of globalization and technology to keep inflation low. Fed Chairman Powell is doing the best he can, but even the best economists can’t predict the future
Questions/Discussion:
- What was the main point of Chairman Powell’s August speech?
- What are the goals of the Federal Reserve?
