Revisiting Jerome Powell's approach to the economy : Planet Money : The Indicator from Planet Money Today President Biden reappointed Jerome Powell as chair of the Federal Reserve. So we revisit a recent episode about Jay Powell's first term and his approach to steering the economy — Jeromonomics.

Jeromonomics 2.0

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The waiting is over. I know INDICATOR listeners have been at the edge of their seats. President Biden has finally made his choice on who will chair the U.S. central bank for the next four years. So it's the Federal Reserve's job to get as many Americans working as possible and to keep inflation low.


PRESIDENT JOE BIDEN: To meet these goals is going to require patience, skill and independence. That's why, today, I'm nominating Jerome Powell for a second term as chair of the Federal Reserve.

WOODS: That's right - current Chair Jerome Powell. Our colleague, Scott Horsley, is joining me now from NPR's business desk.


WOODS: So, Scott, what do you think of the decision to reappoint Jerome Powell as Fed chair? Like, were you surprised?

HORSLEY: No, this was really the default decision. This is what the markets were expecting. This is what the betting markets had predicted would happen. There was some pushback from progressive Democrats who would have preferred to see someone like Lael Brainard replace Powell as Fed chair. And Biden threw a bone in that direction by naming Brainard to be vice chair of the Fed.

WOODS: OK, so what does this new dynamic duo of Lael Brainard as vice chair and Jerome Powell as chair - what does this mean going forward in terms of Fed policy?

HORSLEY: It does mean continuity. It means the Fed will continue to be aggressive in trying to promote full employment. They will have to be careful addressing price stability, though, because we are staring at inflation that is its highest level in more than three decades. In sticking with Powell, who was initially appointed by former President Trump and who is a Republican, Biden does give himself a little bit of political cover if inflation remains uncomfortably high.

WOODS: Thanks so much, Scott.

HORSLEY: You're welcome.

WOODS: Now, this seems like a perfect opportunity to drop an episode that we did over the summer on how Jerome Powell is steering the economy and changing the Fed. So after the break, we're going to do just that.


WOODS: So we really wanted to know how exactly Jay Powell has shifted economic thinking at the Fed. And I was thinking, we need a kind of catchy name for that kind of thinking.

What would you call it? Is it Jeromonomics (ph), Jayonomics (ph)...

MIKE KONCZAL: (Laughter).

WOODS: ...The New Powell Doctrine?

KONCZAL: I am terrible at trying to name things, so I'm probably the last person you want to ask about that.

WOODS: So it sounds like we're going to need to get a marketing agency involved to come on board to name this.

KONCZAL: Yes, definitely. That would be a good investment for Jay Powell.

WOODS: This is Mike Konczal. He's a director of macroeconomic analysis at the Roosevelt Institute, which is a progressive think tank.

If there was, like, a single indicator, like, a single number that represented Jay Powell's approach to economics, what do you think it would be?

KONCZAL: In the past, we'd just look at one number, like the measured unemployment rate, and say, aha, that's the economy - where I think Powell has actually brought in a lot of other indicators.

WOODS: I like your answer, which is kind of wishing-for-more-wishes type of answer, which is...


WOODS: His number is that he's not looking at a single number. But if you were to kind of say one thing that represents his broader look, what would that one be?

KONCZAL: I think the Black-white unemployment gap.

WOODS: The Black unemployment rate is a lot higher than the white unemployment rate - almost double. And it's actually less high than it has been historically. Mike says that Jay Powell wants this gap closed and looks at this figure perhaps more than past Fed officials did, who might have just looked at the overall unemployment number when thinking about jobs. And this is a real live debate about whether targeting metrics like these politicize the Fed.

And given all this new thinking, we wanted to know exactly how Jay Powell is thinking differently. What is Jeromonomics? And Mike breaks it into four ways Jay Powell is breaking away from the past.

KONCZAL: So the first is that we can have much tighter labor markets than what has counted in full employment in recent decades. In general, economists have thought that unemployment couldn't get below 4.5% or, you know, maybe 4%. And, you know, even at 3.5%, Powell said, you know, this doesn't feel like full employment. We don't have significant wage takeoff that we'd be worried about. We're seeing people who are outside the traditional labor force - perhaps they're disabled, or they've given up looking for work - being brought into the labor market. And employers are seeking them out. So not just that the number could go lower, but who counts as unemployed could be expanded out. And the actual size of the labor force could be determined by more aggressive policy.

WOODS: All right. So that's No. 1. We can have much tighter labor markets than previously thought. What's No. 2?

KONCZAL: The risks of a weak recovery are greater than that of overheating. There's a real worry that if the Fed undershoots a recovery, it's not just that it happens to be a little bit lower than it could be otherwise or that, you know, it'll catch itself up later. It's that if the Fed is under target, if unemployment is higher than expected for a longer period of time, it has real persistent effects. People drop out of the labor force. Investments that could have been made in human capital and physical capital and infrastructure by businesses and by the private sector wouldn't happen. It wouldn't get made up later, like a lot of economists sort of think.

WOODS: So that's quite a break from maybe conventional thinking, which was that, you know, if anything, you want to prevent overheating and prices getting out of control.

KONCZAL: Yeah, absolutely. The real fear is on overheating. And as such, you know, I think a big analogy during the Great Recession was, like, trying to hit a bull's-eye. And if you're looking at a dartboard or an archery target and you only see the impacts below the target, you know you're not actually aiming at the target. You're aiming below it. And that's what you would see with inflation and in unemployment, essentially, is that, you know, unemployment was always above the target.

WOODS: All right, No. 3.

KONCZAL: The third major innovation was fighting the pandemic and doing a real across-the-board, everything-and-the-kitchen-sink approach to ensuring that the floor of the economy didn't give in 2020 as everything went into lockdown and that we were in a good position to have big job growth this year - so advocating as forcefully as a Federal Reserve chair can do for additional spending for things like aid and support, especially to unemployed workers throughout last year. In addition, he was willing to use a lot of tools to directly support municipalities, states and businesses. He was able to ensure that they all had access to credit and to cheaper credit. So I think, you know, without those actions, our recovery this year would have been much weaker.

WOODS: Right. So adding a lot of tools to the Fed toolkit. And what's the final shift in thinking that Jay Powell has really led?

KONCZAL: The final one's the big controversy for this year. It's for allowing for periods of higher-than-expected inflation to ensure that we have robust economic recoveries. Normally, the Federal Reserve wants to have 2% inflation. That's its target. And there's always been a worry - and it's a worry that I think became much more relevant with the weak recovery from the Great Recession - was that that 2% was not really a target, at which point you could maybe go over under it, but more of a ceiling - that it was like a speed limit that you couldn't go over. And in effect, like a speed limit, not allowing for periods where a slightly faster recovery would entail a little bit above average inflation - maybe even a kind of catch-up inflation following a recession, the same way you might speed up a little bit to get back to the estimated time of arrival on a trip.

WOODS: Got it. Are these radical ideas?

KONCZAL: I think they're radical ideas for a really conservative institution, which is the Federal Reserve. And I think Powell pushed it in a more dovish way and in a way that is more generous and better for everyday working people.

WOODS: How much credit should Jay Powell's predecessors, like Janet Yellen and Ben Bernanke, get for this new thinking?

KONCZAL: It's a complicated question. I think the historians will have to figure that one out. What I'd emphasize, though, is that this is not just a battle of, like, who has the best idea or who can write down the coolest equation. It's really about building credibility and institutionalizing these changes and bringing people on board. And there, I really do think Powell has brought a special element to it that another particularly smart, particularly good person may not have.

WOODS: Of course, this approach is not without its critics, like from people who want a more hawkish Fed chair or people who think that the Fed should just focus on inflation or people who think that the Fed should focus more on climate change. But that is Jeromonomics, according to Mike Konczal - four ways Jay Powell shaped the Fed's actions in new ways.


WOODS: This episode of the indicator was produced by Brittany Cronin with help from Isaac Rodrigues. It was fact-checked by Kaitlyn Nicholas, Michael He and Taylor Washington. Our senior producer is Viet Le. Kate Concannon edits the show. THE INDICATOR is a production of NPR.

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