Off with the Fed’s Head?

The surge in US consumer price inflation last month to a three-decade high of 6.2% risks further undermining the narrative that today’s rising prices are transitory and could destabilize long-term inflation expectations. When and to what extent should the Federal Reserve further roll back quantitative easing and increase interest rates – and should Fed Chair Jerome Powell remain in charge?

In this Big Picture, J. Bradford DeLong of the University of California, Berkeley, fears that Powell will heed growing Republican calls for substantial, immediate monetary-policy tightening, and urges Biden to replace him with Fed Governor Lael Brainard. MIT’s Simon Johnson agrees, arguing that premature tightening would be a massively consequential policy mistake.

Stanford University’s John B. Taylor takes the opposite view, pointing out that the Fed – despite surging inflation – is keeping the key federal funds rate in a range far below what its own monetary-policy rules would prescribe.

But Nobel laureate economist Joseph E. Stiglitz notes that the Fed’s mandate is not only to maintain price stability, but also to ensure financial stability, and argues that Powell’s reluctance to address climate risk and his lax approach to financial-sector regulation make him the wrong man for the moment. And Columbia University’s Willem H. Buiter thinks the Fed and other leading central banks should focus more closely on how they will manage the next big asset-price correction.