The Fed’s quest for higher inflation looks doomed without Congress

In the week since the Federal Reserve announced that it would tolerate periods of higher inflation, top officials past and present at the US central bank have tried to fill in the sketch laid out by its chair, Jay Powell.

Vice-chair Richard Clarida affirmed that low unemployment alone will not spur increases in interest rates. Former chair Ben Bernanke likened the new strategy statement to a constitution that sets out broad principles, and said he expects the Fed to eventually roll out a more explicit form of guidance, tethering rate increases to certain economic metrics. And John Williams, the president of the New York branch, walked through why the new framework would enhance the Fed’s ability to boost prices and also the jobs market.

The Fed’s urgency to do more to aid the real economy is unsurprising, given that its policies have helped fuel one of the sharpest rebounds in the history of US markets. Meanwhile, so-called Main Street has languished, dogged by high unemployment and rising bankruptcies for small businesses. Narrowing Wall Street’s lead, then, has become more than simply a matter of financial stability. It is also about the Fed’s reputation.

For now, though, one thing has become clear: no one thinks the Fed can succeed without the aid of the government….

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