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**JULY 14, 2021**

Kuttner on TAP

Fed: Steady as She Goes

****

Republicans, who want an excuse to vote against infrastructure outlays,
are hoping to spook Biden and the Fed with talk of Bidenflation. But
judging by his testimony today to the House Financial Services Committee
,
Fed Chair Jerome Powell, nobody's idea of a free-spending liberal,
isn't buying it.

He and the central bank's Open Market Committee will continue the
Fed's policy of low interest rates. The short-term jump in prices,
reflected in a 5.4 percent increase in the June Consumer Price Index
relative to June 2020, Powell testified, is the result of one-time
supply bottlenecks as the economy reopens, and the fact that prices are
rebounding from a depressed level in 2020 during the pandemic.

It's also true that as labor markets have tightened, wages in some
sectors have increased, increasing labor costs, but that's good news.
In fact, average wages have been increasing more slowly than prices. As
Powell testified, he expects the medium-term inflation rate to be well
within the Fed's own target of 2 percent.

Biden has broken with neoliberal orthodoxy in one area after another. An
important one is not being stampeded into pulling back from a needed
recovery program because some fiscal scolds panic at the first sign of
inflation.

This morning, Politico opined that because of the higher Consumer Price
Index figure for June, maybe Larry Summers's inflation worries were
right all along
.

Bloomberg reported that National Economic Council chief Brian Deese and
Council of Economic Advisers chair Cici Rouse invited Summers in for a
courtesy chat

yesterday. The subject was reportedly infrastructure. As in, "Larry, we
are having enough trouble with the Republicans, so maybe you could stop
attacking the program as too big?"

Not likely. At least Summers's public attacks minimize the risk that
he will have any influence inside.

Meanwhile, Powell is eager for Biden to reappoint him as chair. His term
expires early next year. As a Republican, he partly bulletproofs Biden
against the charge of being soft on inflation, and serves as an
administration olive branch to Republicans in Congress.

But Powell has been dismal on the Fed's other job-financial
regulation. My sources say the decision hasn't been made yet, but
Biden is likely to name a new Fed chair.

~ ROBERT KUTTNER

Follow Robert Kuttner on Twitter

Robert Kuttner's latest book is
The Stakes: 2020 and the Survival of American Democracy
.

[link removed]

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FEROZ

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