Don't force Jay Powell to make the boudin noir

The Fed is being asked to and can do a lot more these days. But "can" doesn't necessarily equate to "should."

[Note: Originally posted October 16, 2020 on my now-defunct Substack]

In reading Bill Bryson's excellent book Dirt, the author was invited to a pig killing, so he could be a part of the process of creating boudin noir, or blood sausage.

The back legs needed to be secured at the ankles. I was surprised by her strength, four of us on top of her, trying to get her limbs to cooperate. The squealing never stopped, until finally the ankles were secured, and I relaxed my grip, and the pig went quiet. She turned her head—she had to twist it round—and looked at me. Her gaze was intense, and it wasn’t easy to turn away from. It said: Don’t kill me.
“Get the bucket,” Ludovic told me. He pointed. It was nearby. “Now kneel, there.” Là.
I got down, just in front of the animal. She lurched and bucked, but the movements were small. “As the bucket fills, stir,” Ludovic said. “Steady and quickly. To keep it from coagulating.”

We may all be put in a place in the course of our careers that we didn't expect. For Bryson, it was vigorously stirring a pig's blood to keep it from coagulating. For Jay Powell, it is managing to keep the US economy afloat, while steering his august central bank clear of the many, many political icebergs.*

The Fed is by definition a non-political entity. The last thing Jay Powell and crew want is to be forced to make decisions because Congress and the White House get mired in squabbles and are rendered useless - that’s why every Fed official out there, including Powell, has pressed hard on the “We need fiscal stimulus ASAP” button.

The thing is, the Fed could do more. It just doesn’t want to. Stepping into the battleground of Washington DC politics is not in Powell's (or the market's) interest.

And yet as Former Fed economist Claudia Sahm wrote in the NY Times today,

We need blue sky ideas, and they exist. One example, a proposal by former Fed economists Julia Coronado and Simon Potter, is that the Fed could get money directly to people, using digital currency not unlike a direct deposit. To avoid politics, this emergency support would be tied to macroeconomic conditions, like the unemployment rate. Such policies would blur the line between fiscal and monetary policy, but if done well, the independence of the Fed from Congress could be preserved.
Yes, to take some of the boldest measures under consideration — like sending money directly to people — the central bankers would need more authority from Congress. But Congress has been more than happy of late to delegate economic policy to Fed officials. So they should ask for it.

If we ignore the "To avoid politics... the central bankers would need more authority from Congress" leap for the sake of discussion, that's a hard argument to make, at least from a political perspective. It's hard to imagine a scenario where technocrats making decisions on who to give money to and how much to distribute would be palatable, despite its efficiency. Congress is going to have to own any failure to pass a meaningful stimulus to get cash in to the hands of households.

Second, some are already seeing the Fed as the backstop to a worst-case election scenario. Bank of America economists today outlined the potential economic scenarios around a contested election, including where nobody concedes and the decision heads to Congress and (probably) the Supreme Court. The team said the Fed could ramp up its asset purchasers to help ease market conditions (some would argue the market would take care of that for the Fed, since everyone packs into the safety of US Treasuries despite US-borne volatility).

These are all clearly suboptimal outcomes. Nobody wants the Fed to be put in these positions. But when the machinery of the legislative sausage grinder locks up and everyone is hungry, there's going to be some serious demand for the services for the one charcutier left who may or may not be willing to blow up the pig's intestines and fill the cases of blood sausage by hand.

Show Comments