A Conversation with Federal Reserve Chair Jerome Powell

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On Thursday, January 14, 2021, Federal Reserve Chair Jerome Powell joined Markus Brunnermeier for an online conversation. The following topics were discussed: (1) the new flexible average inflation targeting framework, (2) the possibility of an “inflation whipsaw,” (3) the importance of central bank independence to avoid fiscal dominance and of macroprudential regulation to avoid financial dominance, (4) the difference between the COVID crisis and Great Recession, and (5) various crisis response measures the Federal Reserve employed during the COVID crisis.

[@billgoffe]

Hi, ex-ante central banks focus on shocks absorption to return to the steady state but underweight allocation efficiency by hampering the price discovery mechanism. So this distorsion create a potential negative externality by taxing future generations (asset prices) and notably endanger the social pact (redistribution effect). This unstable equilibrium could lower the long term target ie the growth potential (lower productivity due to a negative Shumpeterian effect, higher markups, lower household formation and fertility). Ex-post, central banks are currently agents of the secular stagnation hypothesis in my opinion. So achieving a lower long term target, is it worth the sacrifice of the invisible hand? I think allocation efficiency should regain some attention if a free market economy is the collective choice.