Congress is more worried about balance than Facebook's inflation

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Who said that bipartisanship is dead?

Federal Reserve Chairman Jerome Powell's latest testimony to Congress on Wednesday and Thursday showed that many Democrats and Republicans in the House and Senate have similar views on the key issues facing the central bank. faces.

We live in a world where Representative Alexandria Ocasio-Cortez (D., NY) and Senator Richard Shelby (R., Ala.) Ask Powell similar questions about the economy, and where the Meaning. Mike Crapo (R., Idaho) and Sherrod Brown (D., Ohio) are surprisingly in agreement on the need for new financial regulations to deal with monetary innovations.

Ocasio-Cortez and Shelby both rejected the idea that the unemployment rate would help predict changes in the rate of inflation. The standard models used by the Fed and other central banks assume a relatively simple relationship between the "slackening" of the labor market and the pace of rising consumer prices.

Janet Yellen and Stanley Fischer, the two leading Fed officials in 2014-17, were both strong supporters of these models. That is why they insisted on tightening monetary policy while the unemployment rate began to drop to 5%. As a result, the unemployment rate continued to decline and the inflation rate remained stable at around 1.5% to 2%, which is slightly slower than would be desired by Fed.

Ocasio-Cortez asked questions about it Wednesday wondering if the Fed had erred in its initial assessment of the "lowest unemployment rate possible" and what it meant for politics. Powell acknowledged the Fed's mistake, saying the old estimates were "absolutely" too high. In addition, he said that old relations have weakened to the point that "the economy can maintain a much lower unemployment rate than expected".

Shelby reiterated his series of questions on Thursday, noting that "we have a low unemployment rate, but we do not currently have a lot of pressure, from your testimony and from what we observe, on the subject. ;inflation". "We had a different economy" when old relationships were identified and integrated into macroeconomic models.

There is also a bipartisan concern about the implications of
Facebook

Efforts to create a new global monetary system, called Libra. Crapo even went so far as to ask if it was "necessary to create a new regulator" to deal with the unique problems posed by a social network providing financial services.

Powell thought this might make sense, not least because, as he said, there is currently no regulatory body that addresses all the "serious concerns" posed by the Libra system. . Brown immediately followed Crapo asking Powell what these concerns were: The main issues are consumer privacy and money laundering.

Crapo and Brown were not the only senators concerned with Libra. Meaning. Bob Menendez (D., N.J.), Mark Warner (D., Va.) And David Perdue (R., Ga.) Also wanted to know the implications of Facebook's new monetary system for US central bankers. Could the proliferation of Libra make it more difficult for the Fed to control inflation? Could it become a reserve currency and threaten the dollar? Could this affect the ability of the government to impose sanctions on terrorist organizations and rogue states?

All this suggests that Congress has little desire for a high unemployment rate to anticipate the risk of inflation, nor of lighter regulatory regimes for technology companies wishing to create monetary systems. parallel.

Write to Matthew C. Klein at [email protected]