Americans are worried about rising inflation, and a recent survey found that 60 percent of likely voters believe the Biden administration isn’t paying enough attention to the matter. To add insult to injury, a leading Democrat economist believes that even the Federal Reserve Board isn’t paying enough attention to inflation.
Larry Summers, who served as Secretary of Treasury under Bill Clinton, has warned that the Fed and other central banks are too focused on “woke” social issues and not sufficiently focused on inflation. Summers, who is now a professor economics at Harvard, said the following, as quoted by the Washington Times:
We have a generation of central bankers who are defining themselves by their wokeness. They’re defining themselves by how socially concerned they are. We’re in more danger than we’ve been during my career of losing control of inflation in the U.S.
As evidence that control over inflation is being lost, Summers cited lax monetary policy, soaring housing prices, a record federal budget deficit, and excess household savings. The Fed’s “wokeness” consists mainly of its focus on “climate change” and racial “equity.”
Whatever one thinks about the merits of these concerns, they clearly are outside the Fed’s statutory mission. The Fed’s excursion into these areas represents a blatant case of mission creep.
All 12 Republicans on the Senate Banking Committee made this point in a letter to the Boston regional office. They stated:
Several Regional Federal Reserve Banks, including yours, have embraced politically charged social causes outside of the Federal Reserve’s historical mission and statutory mandate. This mission creep threatens the credibility and independence of the Federal Reserve.
The role and purpose of the Regional Federal Reserve Banks is to limit the concentration of power in D.C. and represent the economic interests of their respective regions, not to engage in partisan politics.
The Boston office isn’t even the worst offender. According to the Republican Senators, the Federal Reserve banks of Atlanta, San Francisco, and Minneapolis are the most active in pushing “social justice causes.” According to the Washington Times, since the death of George Floyd, the bank of Minneapolis has taken steps to combat alleged racial inequality. Led by Neel Kashkari, who headed up the Troubled Asset Relief Program under President Obama, the bank has made a public “commitment to dismantling structural racism.”
“Climate change” is the Fed’s other hobby horse. It now includes climate change in its financial stability report and has joined the Network of Central Banks and Supervisors for Greening the Financial System. It also has created a committee to evaluate the potential impact of climate change on banks and markets.
It’s doubtful that the Fed knows enough to handle its statutory mission, which is purely economic. It’s certain that the Fed lacks the expertise and the level-headedness to sort through issues of race and climate, both of which are outside the statutory mission in any case.
When it comes to the focus on climate change, the Fed’s offense is even worse than intervening in areas where it lacks expertise. As the 12 Republican Senators explained, the Fed’s intervention in this area is s perverse:
We question both the purpose and efficacy of climate-related banking regulation and scenario analysis, especially because the Federal Reserve lacks jurisdiction over and expertise in environmental matters. This effort is not grounded in science or economics, but is instead a self-fulfilling prophesy: claim there are financial risks with energy exploration and other disfavored investments then use the levers of government — via the unelected bureaucracy — to ban or limit those activities.
UPDATE: Here’s Larry Summers’ view of the latest inflation report: