Kevin Warsh, the alleged heir to Jay Powell as president of the Federal Reserve, gave a speech last Friday Recognizing “a new interest in my opinions” and offering a spicy attack against the actions of the American central bank since he resigned from his post as governor in 2011. Too much quantitative relaxation, a desire to welcome lax budgetary policy, the transplant of the mission via the poor had led to recent inflation, he said. This and other failures had left the Fed licking her injuries, nursing care lost credibility and “generating less good results for our citizens”.
Warsh said her speech was a “love letter” to the Fed. But when someone says that the problems of the world come from “inside the four walls of our most important economic institutions” and speaks of American central bankers as “pampered princes” which deserved “opprobrium” so as not to contain inflation, it does not seem completely constructive to my ears.
Of course, it was a job request. So, in constructively criticism of the speech and ask what a Fed led by Warsh would look like.
Good, exaggerations and what was missing
I have a lot of time for a large part of the criticism that Warsh was making. Central bankers need humility, should not be pampered in public life, require solid surveillance and, in fact, the degrobrium if they are mistaken. There was an omnipresent trend in these institutions, and not only in the United States, to pass the basis of recent inflation. There was the mission that slipped into areas outside the basic functions of central banks, which undermines both their legitimacy and their democracy itself. Warsh was absolutely right to criticize the central bankers who choose to promote the interests of the groups before their mandates to control prices.
But we must not exaggerate these problems, as Warsh has clearly done. When there is an American president who explodes the post-war period, the rules based on rules and the world has undergone a unique pandemic in the century, it is simply bizarre to say that the main problems come from economic institutions such as the Fed.
Even if Warsh is right to reprimand the central bankers for having denied that the aim of quantitative relaxation was to facilitate a greater loan and a revival of the government, it is simply wrong to say that the Fed officials “did not demand a tax discipline at the time of sustained growth and the employment of the full”. Powell has repeatedly said that US budgetary policy was “on an unsustainable path . . . And we know that we have to change this ”(26 minutes 55 seconds, for an example).
Warsh cites Fed fashion monitoring on environmental concerns as something that has undermined its legitimacy. But the Fed being a member of the network to lock the financial system between 2020 and 2025, a body that has made few precious, is barely an offense and had no effect on its credibility.
And when it is put in the financial market test in the past two weeks, far from the Fed which needs to mitigate the losses of credibility “, it was the executive power of the American government – and in particular the president – whose credibility has proven to be deficient.
Exaggerations are inevitably part of a controversy and understandable in a job request. More worrying was what was missing. Warsh has made no attempt to paint an analytical counterfeiting apart to say that the world would be better now if the Fed had not made all the mistakes it described. How much interest rates should have increased in 2020 and 2021 to compensate for public spending and braking inflation? Would that have worked? All the analyzes suggesting that the price increases were impossible to avoid without difficulty compromising unacceptable? For what?
There was no attempt to answer these questions.
Heir with a fellowship
So what would the Warsh Fed look like?
The first conclusion must be that it would be more fellow. Donald Trump may not know it, but Warsh is with the public on inflation. He hates him and did not want to do it on his watch.
Second, it would be more limited in its scope. This would keep the Fed stuck to his mandate – and it would be welcome.
Third, it would probably be more transparent. Warsh made An exemplary reviewFrom Bank of England Transparency in 2014, which resisted the time test.
Fourth, and it is my assumption, a Fed led by Warsh would begin with the certainties of his speech, but soon see that the ambiguities, the nuances and the compromises were in order.
What does the pricing IMF await?
I have always found it more useful to discuss the things we really know and how we think of uncertain events, rather than just talking about what we don’t know. In and around the IMF and spring meetings of the World Bank, central bankers did exactly this.
Those outside the United States think that Trump’s prices generally represent a disinflationist shock to demand that will depress expenses and production. This seems to be the point of view established at present at the European Central Bank, President Christine Lagarde having declared that the prices were probably “disinflationary more than inflationist”. The governor of Boe Andrew Bailey accepted and spoke of a “growth shock”. The Governor of the Bank of Japan, Kazuo Ueda, said that he shared the point of view of the prices as a shock for business confidence. With a stagflationary shock to manage, Fed officials were naturally more vague.
The IMF had the little enviable work to quantify the tariff effect on the world economy last week. Its basic position was essential. The prices Reduce growth worldwide and increase inflation in the United States.
The fund managers discussed changes in his forecasts with Pierre-Olivier Gourchas, his chief economist. They declared that the world economy had entered a new era with the greatest taxation of prices in a century, which “would have a significant impact on global trade” and “slow global growth”.
The most notable dissent of this position, however, has come from the own forecasts of the IMF, which do not correspond to these comments.
As shown in the graph below, the volume of imports of planned American products is stable in proportion to American GDP and increasing each year in real terms. The prices are simply not so substantial in the IMF models. On the other hand, the tax foundation expects imports to decrease us at 23%.
Of course, IMF officials told me that his forecasts have a drop in goods as a share of nominal GDP. But that has interesting implications itself. If the IMF thinks that the volume of imports of American goods will increase in prices, but that the value of these goods will increase at a slower rate, the unit price of American imports (excluding prices) is decreasing. The evidence suggests the oppositeAlthough these forecasts put the IMF in the good books of the Trump administration.
I do not want to get rid of the IMF forecasts, but I am not convinced that the following table demonstrates a “new era” for the global commercial warnings of IMF officials.
What I read and watched
A graphic that counts
The graph below shows that the income of customs and American expansion increases more quickly this year following prices, graciousness from Erica York to the Tax Foundation.
Trump is right to say that billions of income flow in the US Treasury, but not $ 2 billion a day As he likes to claim.
He is even more wrong on the fact that pricing income is important. Part of the increase will decrease profits, which will limit other tax revenue. Prices will also dissuade imports.
Another way to develop income is to estimate an annual total. Let’s say that customs duties increase $ 200 billion to $ 300 billion in a full year (higher than most estimates). These pale in insignificance with regard to income taxes of American individuals, which should increase 2.7 TN.
