The Fed’s Anything-We-Can-Think-Of Monetary Policy Isn’t Working

By Karen Petrou

The day Jerome Powell won his second term as Federal Reserve chair, he said he couldn’t promise a soft landing and hadn’t meant to commit his fellow policy makers only to fifty basis-point hikes. He has also walked away from his insistence that inflation is transitory and the economy is “robust.” We’ve gone from whatever-it-takes monetary policy to anything we can think of. One major reason for this muddle is that the Fed’s models and objectives depend on anachronistic assumptions that America has a vibrant middle class. Once we did; now we don’t. With a deep middle class, policy transmits effectively through the economy; without one, it can’t. We urgently need a new approach to central banking that takes inequality fully into account and thus protects sustained, shared prosperity.