Powell Steers Clear of Naïve View on Inflation

US
Federal Reserve Board Chairman Jerome Powell speaks during his re-nominations hearing of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, D.C., January 11, 2022. (Brendan Smialowski/Pool via Reuters)
Financial-markets commentators and policy-makers should do the same.




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nflation took center stage at the recent confirmation hearing for Federal Reserve chairman Jerome Powell. “High inflation is a severe threat to the achievement of maximum employment,” Powell told members of the Senate Banking Committee. “To get the kind of very strong labor market we want with high participation, it’s going to take a long expansion . . . and to get a long expansion, we’re going to need price stability.”

Powell’s remarks left some commentators scratching their heads. The traditional economic theory, based on what is known as the “Phillips curve,” takes there to be a trade-off between inflation and

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