After not raising rates to fight inflation last week, Federal Reserve Chair Jerome Powell delivered his usual speech and Q & A. He opened with three very peculiar sentences regarding price stability, leading to a few unsettling conclusions.
He starts with:
Price stability is the responsibility of the Federal Reserve.
This statement raises concerns. First, it fails to define what price stability means. Even if Congress had assigned this responsibility to the Fed, it’s not something many would agree with if given the chance. While the approach to achieving this desired state of price stability appears quite absurd, for argument’s sake, let’s consider this statement true.
In Powell’s following sentence he inadvertently shares the dire consequences of giving this responsibility to a central bank, as explained:
Without price stability, the economy does not work for anyone.
This is a rather bold, yet hollow statement. He essentially suggests the economy cannot function without the Fed’s intervention.
Examining the history of America reveals that central banking hasn’t always been a requirement for prosperity and development. Looking at present-day and historical hyperinflations, it becomes evident central banking is largely culpable in a nation’s currency collapse. From what we’ve seen of the Fed, there’s little reason to believe this current iteration of America’s central bank is somehow different.
The Austrians have argued for over a century that a currency monopoly or central authority controlling a nation’s currency is unnecessary, much like we don’t need a czar to regulate the production of shoes, cars, or gold.
To state that the Fed makes the economy work for everyone is simply untrue. It’s clear how bankers who receive bailouts and capitalize off borrowing millions and low interest rates are better off; but the average person on main street who ultimately pays for this market distortion can hardly say the Fed’s policies work in their favor.
The third sentence follows a similar vein as the previous:
In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all.
This claims that a strong labor market is due to the Fed’s management of price stability. He’s taking credit for something that cannot be verified. It would be useful if, during the Q&A session, a reporter inquired as to how the Fed ascertains what a “strong” labor market is and how market intervention contributes to a stronger labor force. However, questions like this are seldom asked.
Returning to one crucial point: although Powell does not address what he means by price stability, the St. Louis Fed has an article elaborating on it…
Price stability means that inflation remains low and stable over the longer run. When inflation is low and stable, people can hold money without having to worry that high inflation will erode its purchasing power.
In addition to not utilizing the historical definition of inflation, the notion that a gradual reduction in purchasing power could ever be beneficial to society is something everyone should recognize as false.
It’s also worth noting Powell’s same three sentences have been used nearly verbatim in speeches in February of this year, as well as August and November of last year. If one were the wagering type, it would be reasonable to bet these three sentences have been reiterated more than four times during Powell’s tenure.
