NEW HAVEN – Poor Jerome Powell. With US inflation close to a 40-year high, the Federal Reserve chair knows what he needs to do. He has professed great admiration for Paul Volcker, his 1980s-era predecessor, as a role model. But, to paraphrase US Senator Lloyd Bentsen’s famous 1988 quip about his vice-presidential rival, Senator Dan Quayle, I knew Paul Volcker very well, and Powell is no Paul Volcker.
Volcker was the quintessential US public servant. He smoked cheap cigars, wore rumpled off-the-rack suits, and had a strong distaste for the glitz of Washington power circles. His legacy was a single-minded discipline in attacking a pernicious Great Inflation.
Unlike the modern Fed, which under Ben Bernanke’s intellectual stewardship created a new arsenal of tools – balance-sheet adjustments, special lending facilities, and the “forward guidance” of outcome-dependent policy signals – the Volcker approach was simple, blunt, and direct. Monetary policy, in Volcker’s view, started and ended with interest rates. He once said to me, “If you are not prepared to act on interest rates, you may as well get out of town.”
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