The Fed claims they are “accountable to the public and the U.S. Congress.” But what good is accountability if the public and Congress have little understanding of what the Fed does? Even worse, if no one has the power to stop the inflationary actions of the Fed, what good are the accountability measures in place?
This week, Chair Jerome Powell addressed Congress and provided the June Monetary Policy Report. The process of testifying before Congress is very much farcical, because what the Fed says has no bearing on what the Fed does. We can assume that few members of Congress actually understand monetary economics. But what if many of them did, as well as the general public? Could the Fed really get away with all of this?
Reviewing the chair’s testimony to Congress reveals how little the Fed and Congress know about economics and illustrates how ineffective testimony before Congress really is.
In his speech, Powell lists many of the lending programs (Paycheck Protection Program, Main Street Lending Program, and Term Asset-Backed Securities Loan Program), but when it came to corporate bond–buying programs, all he offered was:
To support the employment and spending of investment-grade businesses, we established two corporate credit facilities.
Like a teenager trying to hide purchases made on a parent’s credit card, he did not explicitly list the Primary and Secondary Corporate Credit Facilities by name. He only said “two corporate credit facilities,” the only two the Fed has. How issuing debt to corporations or trading their bonds on the stock exchange supports employment or spending is anyone’s guess. What does it matter, anyway? Even if he said that $750 billion may go to buy corporate bonds, who would stop them?
He moved from vagueness to deception quickly with the statement:
The tools that the Federal Reserve is using under its 13(3) authority are appropriately reserved for times of emergency. When this crisis is behind us, we will put them away.
What will the Fed say ten years from now, when “the crisis” is long behind us but the Fed is still using these emergency lending facilities? Or is the crisis not meant to end?
Powell then cited the economic report:
As described in the June Monetary Policy Report, these purchases have helped restore orderly market conditions and have fostered more accommodative financial conditions. As market functioning has improved since the strains experienced in March, we have gradually reduced the pace of these purchases.
We have yet to get details on an “orderly market” or “accommodative financial conditions,” but it’s safe to say that neither the Fed nor Congress really knows what this means.
Chair Powell is not the only central banker who seems to have never read Mises. Vice Chair Richard Clarida also discussed monetary policy this week in a speech, noting:
To me, price stability requires that inflation expectations remain well anchored at our 2 percent objective, and I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective.
Of course, unpacking the issue with a “2% inflation” and “maximum employment” objective would require effort to understand and refute. We can only imagine how few members of society have actually done this.
Just like his boss, the vice chair also stressed how temporary the new programs will be:
these are, after all, emergency facilities, and someday—hopefully soon—the emergency will pass.
Unfortunately, whether “emergency” or not, we can be sure of one thing: the Fed’s balance sheet can never decrease again, as it will lead to “liquidity” and other unbecoming issues of a nonfunctioning market—stock market decline, a decrease in the price of bonds, rising interesting rates, etc. We’ve crossed the rubicon.
Accountability means nothing if those you are accountable to have little understanding of what you say or the ability to affect the outcome. Few elected officials, or anyone in a position of power, have either of the two.
