With stock and property prices once again setting records, Jerome Powell may face some agonizing trade-offs
What if low inflation calls for low interest rates but those low interest rates make an eventual, destructive asset bust more likely? Should he lean against an incipient bubble by raising rates faster now, or plan to mop up the mess if assets collapse later?
.. no divine coincidence dictates that the same interest rate will achieve both 2% inflation and a stable financial system.
.. Before the global financial crisis, they concluded no: pre-emptively pricking bubbles seemed much riskier than letting them burst of their own accord. They are less dogmatic now.
.. In a 2015 speech, he said: “Tighter monetary policy might eventually be necessary” if dangerous risk-taking reappeared. A year ago, he went further: “The current extended period of very low nominal rates calls for a high degree of vigilance.”
The case for vigilance has only grown since.
Protect Democracy First
We’ve just finished an election that included unprecedented violations of America’s long-held democratic values, like calls to overturn civil liberties and the interference of a hostile foreign government. And, of course, the candidate who violated those values won the election.
.. For the many people opposed to him, the right approach involves a balance of vigilance and generosity of spirit. Trump’s initial appointments — of Reince Priebus as chief of staff and Stephen Bannon as chief strategist — underscore the need for both.
.. Priebus, a longtime Republican official, supports many policies that I believe would damage the planet and the middle class, and fighting those policies will be important, soon. Yet I welcome his appointment. He fits squarely within our country’s democratic values.
.. Bannon turned that site into a promoter of racist and anti-Semitic conspiracies, which, to name just one example, smeared the conservative William Kristol as a “renegade Jew.” Bannon has done little to repudiate it.
.. it will be hard to resist treating him as one more subject of partisan debate: Some say he has a racist past, while others say he is a good guy.
.. As John Weaver, the Republican strategist, said on Twitter: “Just to be clear news media, the next president named a racist, anti-semite as the co-equal of the chief of staff. #NotNormal.”
.. “If you want to save the country,” tweeted David Frum, the strongly anti-Trump conservative, “you have to work with people you disagree with on almost every ordinary political issue.”
.. Republicans often like to describe themselves as defenders of freedom. We need them to live up to that ideal.