Federal Reserve Chairman Jerome Powell took part in an interesting discussion, courtesy of the Cato Institute, about monetary policy. A few points jumped out and raised questions in my mind as to whether or not the Fed has any idea as to what it’s doing and what are the effects of monetary policy.

First, the Fed chairman spoke about policy focusing on slowing the economy, which would reduce labor demand and thereby limit wage growth and bring down inflation. This confirms the Fed believes further crippling an already struggling economy makes sense. This should be deeply troubling to everyone.

Second, Powell put forth that monetary aggregates don’t seem to matter anymore, or at least not right now, in terms of inflation. That, of course, raises major questions as to what exactly the Fed is doing. It would seem the only issue that matters to the Fed is manipulation of interest rates. In turn, that would point to increased attempts by the Fed to manipulate the economy and increased risks and uncertainties regarding the Fed creating economic instability by going back and forth between hitting the accelerator and brake.

Third, Powell was asked if the Fed will ever get back to a balance sheet aligned with history as opposed to the sky high levels of the monetary base (currency in circulation plus reserves) since 2008. His answer was striking in that Powell basically said it was unlikely the Fed would return to pre-2008 balance sheet levels. As to why, that was unclear with Powell asserting that “ample reserves” made more sense given the volatility in monetary demand. The idea the Fed’s unprecedented expansion in the monetary base over the past 14 years has contributed to uncertainty in the economy, including, to some degree, our recent bout of inflation, obviously doesn’t factor into Powell’s thinking. Or if it does, only to a periodic and mysterious degree. This, too, is troubling.

Unfortunately, my takeaway from this discussion with Powell was the Fed doesn’t seem to have a clue as to how to deal with inflation other than trying to undermine economic growth. That’s a dated view on inflation — that is, that inflation basically is caused by an overheated economy, including the labor market — and disconnected from an economy that’s already in a recession.

These are precarious times in that the Fed, Joe Biden administration and Congress all seem devoid of economic common sense and advance policies that work against economic recovery and expansion and, by the way, price stability. 

That leaves people in the United States with the hope a private sector battered by public policy nonetheless has the strength and resilience to forge ahead.