Jerome H. Powell, New Head of the Fed

In 1980, the newly elected President, Ronald Reagan, faced a serious problem.  From the early 1970’s the nation had been experiencing an upward spiral of inflation.  Rates that were at 1% in 1965, had hit 14% by 1980.  If you ask any economist what problem is worse for a nation—depression or inflation—they will tell you inflation every time.  First, depression cripple’s nations, but inflation topples them.  Second, you cure a depression by making it easier for people to work, but you cure inflation by making it harder.  It is the difference between inviting everyone to a party and telling them that things have gotten out of hand and everyone has to go home. 

            Busy solving Reagan’s inflation was the Chair of the Federal Reserve a tall, athletic, cigar smoking man named Paul Volker.  He switched the Fed’s focus from the ineffectual targeting of interest rates and, instead, attacked the money supply.  Credit became expensive.  The brakes came on, recession ensued, and inflation collapsed. 

            Politicians hate recession.  The folks back home love the party, hate the clean-up.  Reagan, in the midst of his first term and hoping for one more, called Volker into the Oval Office with the hope to charm (or coerce) the Fed Chairman into letting loose of the reins on credit.  Paul listened politely and then declined to do what his President suggested.  He wasn’t necessarily being brave, the Fed answers to the Congress, not the President, and Volker knew it.  But Volker was also carrying the authority of one who knows what he knows, is defended by the facts and has a fair amount of both power and respect.  The rest is history.  Paul was right, the economy recovered stronger than ever, Reagan re-appointed Volker.  The good guys won.  Hi-ho-Silver!

            Fast forward to the 21^st Century.

I finally have some reason to sleep well.  President Trump nominated Jerome H. Powell as the next chair of the Federal Reserve on Thursday.  This is an intellectually and philosophically laudable selection.  Powell is an excellent choice for Chairman of the Federal Reserve. 

            When I think of the enduring accomplishments of this republic, beyond the genius of the Constitution, you must look at two milestones of human thought.  One is the Northwest Ordinance and the other is the creation of the Federal Reserve System.

             The Fed is the central bank of the United States.  It is divided into twelve districts (Boston, New York, Philadelphia, Richmond, Atlanta, Minneapolis, St. Louis, Cleveland, Dallas, Kansas City, San Francisco, and Chicago), each with its own bank.  The Fed sets the nation’s monetary policy, supervises and regulates banks, and helps to maintain the stability of our financial system.  

            You need only look at the difference between the financial stability of our country, and those without an independent central bank to see the value of the Fed. The calm, measured and intelligent work of the Fed is conducted by the 7-man governing board.  These people serve 14-year terms.   These long and staggered terms make them impervious to political manipulation or expediency.  [Powell was appointed to the governing board by the Obama administration.] The Fed’s Chair (arguably one of the ten most powerful humans on the planet) is appointed to a 4-year term.  Together, the Chair and Governing Board are spectacularly independent of political perversion and work for only one thing, a strong American economy.

            Powell is described as a quiet businessman who keeps in the background, plays well with others and doesn’t mind hard work. He likes to ride a bike to work. In an address in Virginia in March he said the following:
"In my experience, the best outcomes are reached when opposing viewpoints are clearly and strongly presented before decisions are made,”

            Powell sounds like someone who will keep the faith.