While Chair Jerome Powell has won united support from the current Federal Reserve policy making team for his latest gameplan to pull down inflation, he’s facing heated criticism from former colleagues, including his recent top lieutenants.
Richard Clarida, who was Powell’s vice chair until January, said this week that interest rates will have to go to levels his former boss hasn’t acknowledged. Randal Quarles -- until October 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 has plenty of company. Alan Blinder, who served as vice chair 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 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 Friday he was “surprised that he took it off the table as firmly as he did.”
Powell on Wednesday signaled 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 a raft of 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%, 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 Friday.
“This is unusual,” said Ethan Harris, head of global economics at Bank of America Corp. “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 U.S. 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,” 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.