This Week in the Mayonnaise Clinic: Does Josh Still Love Jay Powell?

Plus: Is Pride too corporate, or not corporate enough?

Dear readers,

It’s time again for the Mayonnaise Clinic! But before my answers to your mail, I have a question to ask you. I’m going to Bar Harbor, Maine, next week, and I’d love your suggestions about what to do in and around Acadia National Park for a long weekend — particularly, if you have suggestions for pretty day hikes that do not involve terrifying climbs across exposed rock faces using iron ladders and no safety rope.

You can leave your suggestions in the comments below — after the trip, I’ll be writing about your tips plus some that I hope to develop myself.

Now, to the mail:

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Peter asks:

During the Trump administration, you felt Jerome Powell was doing a very good job as Fed chair.

Is that still the case?

The short answer is I’m not nearly as impressed with Powell and the rest of Federal Reserve leadership as I was back in 2020. Since then, they’ve made some significant mistakes.

They erred by continuing to ease for so long, and for not starting to raise rates by mid-2021. It was particularly an error not to significantly adjust monetary policy posture in response to the unexpectedly large fiscal stimulus from the American Rescue Plan — when Congress swooped in with way more deficit spending than expected, the Fed should have trimmed its sails, but didn’t.

Jerome Powell, Chairman of the Board of Governors of the Federal Reserve System, testifies before the Senate Banking, Housing, and Urban Affairs Committee on June 22, 2022 in Washington, DC. Powell testified on the Semiannual Monetary Policy Report to Congress during the hearing. (Photo by Win McNamee/Getty Images)

It’s also now clear that the regime of “average inflation targeting” is a bit of a mess. This is a reform that happened to roll out alongside the pandemic, and it says the Fed will tolerate inflation somewhat above target when the economy is not at maximum employment, so long as inflation works out to the target level on average. This reform was a response to the fact that the Fed often undershot its 2% inflation target in the years following the global financial crisis, causing the economy to underheat and employment to remain unnecessarily depressed. But now that we’ve run well above the inflation target for a while, the Fed is not declaring any intention to undershoot the target in the future. This makes it unclear what “average” targeting actually means, and creates additional uncertainty about what inflation rate market participants should expect in the future. And as I discussed with Allison Schrager on the podcast this week, that kind of uncertainty should make borrowing more expensive in the long run.

I feel a little chagrined offering this critique because I was along for the ride.