The Lawyer Is A Better Fed Chief? Or Fed Plots A Higher Unemployment Rate

Jerome PowellIn the the week to last Wednesday, globally, money funds added $16.3mm which added to the inflows of $68mm they received in the preceding week, contrasting with weekly outflows of $1.6mm in tech funds which delivered their worst performance since December 2018.

With that, a lawyer will supplant Janet Yellen, a dyed-in-the-wool conventional macroeconomist, as leader of national monetary policy.

Lamentably, going to a lawyer is arguably a change for the better.

The Fed Wats Higher Unemployment

In the last two years, Fed staffers have consistently posited the US economy is facing “labor shortages” and is “beyond full employment,” even as wages rise like redwoods in the Sahara.

And on Jan. 16 from the San Francisco branch of the Federal Reserve, we have this gem: “We expect the [unemployment] rate to fall below 4.0% in 2018 as the economy continues to strengthen. With the gradual removal of monetary policy accommodation, we expect the unemployment rate to return gradually to our estimate of the natural rate of unemployment of 4¾%.”

Oh, happy days, the Fed will bring higher unemployment to America.

The Fed, btw, thereby posits that “full employment” is when there are about 1.5 people looking for a job, for every available job opening.

Allow the workforce a tighter market than that 1.5 ratio, and you have….

Phillips Curve and NAIRU

Fed staffers and orthodox macroeconomists still genuflect to the twin totems, the Phillips Curve and NAIRU (non-accelerating rate of unemployment).

Of course, in recent decades, many have noted that price inflation appears impervious to lower unemployment rates. And, gee, currently as well: Unit labor costs have flat-lined in the US, starting two years ago. The PCE is running at 1.5% YOY.


Future Fed Chief Powell is a Wall Streeter, a GOP political appointee who in previous government stints worked in regulating markets and banks. Powell may not be someone who believes theory trumps fact. True, through osmosis in his years at the Fed, Powell may have adopted the culture and biases of that independent public agency, but we can hope not.

If Powell can bring a practical approach to the central bank, his results may be superior than that which his staffers and some fellow FOMC members want.

Powell may also be inclined to help “the GOP tax cuts work.” If the Fed suffocates the economy now, the voting public may deduce the GOP-corporate tax cuts were bogus, in terms of economic stimulation.

If Powell is smart, he will use such an argument behind closed doors to advocate not using the monetary noose.

Lastly, Powell would do well to adopt NGDP LT, and perhaps he is un-doctrinaire enough to do so.

So, there is the oddity: A lawyer may provide a better monetary policy than many a credentialed macroeconomist.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.