Avi Tiomkin writes for Barron’s that the head of the Federal Reserve appears to be following regrettable precedents.
The Federal Reserve recently suggested that it was finished raising interest rates for now, and might even stop shrinking its post-financial-crisis balance sheet sooner than expected. Even so, in delivering numerous upbeat assessments of the U.S. economy, Fed Chairman Jerome Powell is continuing the regrettable tradition set by his predecessors, Alan Greenspan and Ben Bernanke: that of blatant detachment from the real economy. This isn’t merely aloofness, but deliberate disregard of increasingly clear signals that point to a looming recession, including a dramatic slowdown in housing, stagnating car sales, declining retail sales, and economic weakness in China and Europe, accompanied by the dismissal of those who warn of an imminent crisis.
When we read through the transcripts of Fed deliberations on the eve of megacrises such as 2000 (Greenspan) or 2008 (Bernanke), and follow Powell’s statements of the past year, it is hard to believe the Fed’s inability to read the state of the economy or understand its decision-making process. Only when reality struck in the past, when the ship smashed into the iceberg, was there a willingness to admit to analytical flaws, recognize errors of judgment, and craft a recalibration of policy.
