Matthew Rose, an Opinion editorial director, hosted an online conversation with three economists about the future of the Federal Reserve, which meets this week, and how it should manage an economy that’s increasingly hard to read.
Matthew Rose: President Trump, depending on the day, seems to want to fire Jerome Powell, the chairman of the Federal Reserve. On other occasions, Trump is telling the Fed chairman how to do his job. The administration’s trade policies are pushing America into a slowdown, which would suggest a rate cut, and also raising prices, which would suggest the opposite, which is a real puzzler for anyone trying to set policy.
This might be one of the hardest jobs in Washington. Jason, how do you think the Fed chairman has handled these dilemmas, and what advice would you give him?
Jason Furman: Jay should keep doing what he’s doing. He has to take White House policy as a given in charting his course. He should talk about the consequences of that policy for the mandate he was given by Congress to achieve stable prices and maximum employment. He should continue not to render a judgment on the merits of those policies. And when asked questions like whether or not he would resign, he should stick to the answer he has already given: No.
Rebecca Patterson: The Fed has to focus on its mandate and communicate the logic behind its decisions as clearly as possible. I think that’s what Jerome Powell has done so far. He and the Fed are staying above the noise. Any sense that the Fed was acting for reasons not tied to its mandate — because of political pressure, for example — would be a disaster. It would raise expectations for higher inflation and increase longer-term borrowing costs. What we saw briefly in financial markets when Trump talked about firing Powell earlier this year would likely repeat, but in a much more powerful way. Weaker dollar, weaker stocks, weaker bond prices and higher yields.
Oren Cass: I suppose we’ll have a lot of consensus on the theme of “focus on its mandate.” With any administration, and the Trump administration especially, it’s important to distinguish the day-to-day rhetoric from serious policy conflicts. President Trump makes it known when he disagrees with anyone, whether it’s a congressional leader, a judge or the Fed chair. But now, in his second term in office, he has never actually attempted to curtail the Fed’s independence. It’s also important for the Fed, in focusing on price stability, to distinguish inflation from tariff-driven price changes. A price that rises as a result of a tax is not rising in a way that a central bank should be responding against.
