While US Federal Reserve chairman Jerome Powell has won united support from the current Fed policymaking team for his latest game plan to pull down inflation, he’s facing heated criticism from former colleagues, including his recent top lieutenants.
Richard Clarida, who was Mr Powell’s vice chairman until January, said this week that interest rates will have to go to levels his former boss hasn’t acknowledged. Randal Quarles — until October Mr Powell’s other vice chair, for supervision — was harder hitting, saying the team ought to have started battling inflation last September, and the Fed now faces a likely recession to bring prices under control.
The duo have plenty of company. Alan Blinder, who served as vice chairman under former Fed chief Alan Greenspan, and William Dudley, part of the Fed leadership through 2018 as former president of the New York Federal Reserve, are among those seeing a recession.
Other observers have chipped in with remonstrations over Mr Powell having on Wednesday taken a three-quarter percentage point rate hike off the menu of options in the immediate future. Former treasury secretary Lawrence Summers said on Friday he was “surprised that he took it off the table as firmly as he did".
Mr Powell on Wednesday signalled the current plan is for the Federal Open Market Committee to mount two more half-point hikes in June and July, after raising the key rate by that amount this week. He said he wasn’t sure if rates would need to rise to levels that restrict economic activity — in contrast to several former officials who have no such uncertainty.
The criticism from former colleagues is the sharpest and most widespread since the 1970s, when inflation was rising to more than 10 per cent, and policy was led by Arthur Burns and G. William Miller, “who had no idea how to deal with inflation", Robert Barro, a Harvard University economist, said on Friday.
“This is unusual,” said Ethan Harris, head of global economics at Bank of America. “The Fed is not going to come out and say ‘we made a mistake', but I do think they understand they waited too long. The criticism I think was warranted and has probably helped to gel opinion on the committee” to step up the inflation fight, he said.
In one bit of stark criticism, former Minneapolis Fed president Narayana Kocherlakota compared the Fed’s oversight of the US economy to a country music song about a reckless driver.
“It’s actively turning in the wrong direction — the kind of mistake many a driver has made when hitting a patch of ice,” Mr Kocherlakota wrote last month.
The criticism is a notable contrast to the relatively gentle treatment Powell has faced in congressional appearances following an extensive campaign to build relations with both Republicans and Democrats. While he’s still awaiting confirmation to a second term at the Fed’s helm, it’s a near certainty that the Republican renominated by Democrat Joe Biden will win overwhelming support in the Senate.
Mr Powell, who’s not a PhD economist and is known for speaking plainly, sought last week to address the economic concerns of ordinary Americans with a direct appeal at the start of his press conference on Wednesday.
“Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down,” he said. Consumer prices surged 8.5 per cent in the most recent reading, the highest annual rate in 40 years.
While ex-Fed officials agree with the need to move expeditiously, they place blame on the chair for not having done enough already.
“This is a problem of their own making,” Charles Plosser, a former president of the Philadelphia Fed, said in a Bloomberg TV interview. While the Fed chair was right to highlight the dangers of inflation Wednesday, “‘I don’t know where that Powell was 12 or 18 months ago,” Mr Plosser said.
Mr Quarles, who never dissented in his policy votes, nonetheless said the FOMC was too slow to react to rising inflation last year. He also blamed the delay on uncertainty over the future of the Fed’s leadership, as Biden took months to decide on pending nominations. “Had clarity been provided, I think the Fed would have acted earlier,” Mr Quarles said.
Many former officials still credit Powell for changing course.
