Who says that the two-party system is dead?
The latest testimony from Federal Reserve Chairman Jerome Powell before Congress on Wednesday and Thursday showed that many Democrats and Republicans in the House of Representatives and the Senate have similar perspectives on the main questions facing the central bank.
We live in a world where Representative Alexandria Ocasio-Cortez (D., NY) and Senator Richard Shelby (R., Ala.) Ask Powell similar questions about economics, and where the Sens. Mike Crapo (R., Idaho) and Sherrod Brown (D., Ohio) are surprisingly aligned with the need for new financial regulations to cope with monetary innovations.
Ocasio-Cortez and Shelby rejected the idea that the unemployment rate helps predict changes in the inflation rate. The standard models used by the Federal Reserve and other central banks assume a relatively direct relationship between the amount of "slack" in the labor market and the pace of increases in consumer prices.
Janet Yellen and Stanley Fischer, the two main Fed officials in 2014-17, were fervent believers in these models, so they pushed to adjust monetary policy as the unemployment rate started falling to 5%. As it happens, the unemployment rate has continued to fall and the inflation rate has remained stable at around 1.5% -2%, which is slightly slower than what Fed officials would prefer.
Ocasio-Cortez asked about this on Wednesday, wondering if the Fed had made a mistake in its initial assessment of the "lowest possible unemployment rate" and what that means for politics. Powell acknowledged the Fed's error and said the previous estimates were "absolutely" too high. In addition, he said that the old relationships have weakened to the point that "the economy can maintain levels of unemployment much lower than we thought".
Shelby reiterated his line of questions on Thursday, noting that "we have low unemployment, but at this time, we do not have much pressure, because of his testimony and what we observe, on inflation." He also noted that "We had a different economy" when the old relationships were first identified and placed in macro models.
There is also bipartisan concern about the implications of
Efforts to create a new global monetary system, called Libra. Crapo went so far as to ask if "we need to create a new regulator" to face the unique problems posed by a social network that provides financial services.
Powell thought that might make sense, especially because, as he said, there is no regulatory agency that currently addresses all the "serious concerns" raised by the Libra system. Brown immediately followed Crapo by asking Powell what those concerns were: the main problems are consumer privacy and money laundering.
Crapo and Brown were not the only senators worried about Libra. Senators Bob Menéndez (D., N.J.), Mark Warner (D., Va.) And David Perdue (R., Ga.) Also wanted to know about the implications of the new monetary system of Facebook for the central bankers of the United States. Could Libra's proliferation make it harder for the Fed to control inflation? Could it become a reserve currency and threaten the dollar? Could it undermine the government's ability to impose sanctions on terrorist organizations and dishonest states?
All this suggests that there is little appetite in Congress for increased unemployment to prevent the risk of inflation, nor is there a desire for light regulatory regimes for technology companies that hope to create parallel monetary systems.
Write to Matthew C. Klein at email@example.com