Central bankers will meet virtually this week to discuss an “unequal economy,” which could spark a debate over Federal Reserve policies regarding racial inequality and climate change.
The Fed’s annual Jackson Hole Economic Symposium kicks off Thursday with the theme: “Macroeconomic Policy in an Unequal Economy,” a break from the vague themes of past years (i.e. “Implications for Monetary Policy” and “Challenges for Politics”).
By devoting its flagship conference (moved to a virtual format this year due to concerns about COVID-19 and the economic divide, the Fed hopes to focus on its new framework. At the central bank conference in Jackson Hole last year, the Fed changed its approach to monetary policy to prioritize the economy as close to maximum employment as possible, even if inflation exceeds its target of 2%.
“They could have made this year’s theme on the average inflation target, and they chose to go with jobs,” said Claudia Sahm, a former Fed economist. Sahm, now a senior researcher at the Jain Family Institute, told Yahoo Finance that the themes of these conferences tend to be carefully deliberated.
Fed Chairman Jerome Powell has frequently referred to the later stages of the recovery from the financial crisis, pointing to job gains among low-income, black and Hispanic households as a benefit of more accommodative monetary policy. long time.
“These developments underscore for us the importance of sustaining the expansion so that the strong labor market reaches more of those who remain,” Powell said in 2019, just before the COVID crisis.
Benjamin Dulchin, director of the Fed Up campaign at the Center for Popular Democracy, said the Fed’s willingness to discuss an unequal economy was “refreshing.”
Fed Up, a view common at Jackson Hole conferences of years past, is for the central bank to go beyond acknowledging disparities in the economy. As Fed officials begin to consider slowing monetary stimulus, the activist group doesn’t want the Fed to return the labor market to pre-pandemic form – they want the Fed to aim for a recovery in the economy. even better job market than that.
Dulchin, who will not be able to send his team to Wyoming because the conference is now virtual, told Yahoo Finance his message to the Fed: “It’s good that you notice it, but what are you going to do? “
The climate to attract attention
The focus on an “unequal economy” could also serve as a follow-up to the Fed’s emerging work on climate risks, which Fed Governor Lael Brainard has drawn attention to in recent years.
The Fed pioneered the idea of a “scenario analysis” that would examine the ability of individual companies and the financial system as a whole to deal with various hypothetical weather shocks.
But Fed officials could face pressure to do more. Another activist group, the environmental organization 350.org, was also planning an in-person rally at the conference. The group accuses the Fed of allowing the banks it regulates to finance the fossil fuel industries, and also calls on the Biden administration to replace Powell with a “climate champion” when his term expires in February 2022 .
For his part, Powell has made it clear that the Fed wants to look at climate risks in relation to financial risks to the economy as a whole, adding that central bank independence requires it to stay away from public policy choices that tax bodies (like Congress) can better respond to.
“We are not, and we do not seek to be, climate decision makers,” Powell said in June.
Yet the climate remains a thorny subject even on the other side of the political spectrum. GOP Senator Pat Toomey of Pennsylvania alleges that the central bank is deviating from its congressional mandates by “publishing politically charged research” on topics such as global warming and racial justice.
It is unclear to what extent Powell will address these issues in his speech on Friday. The Fed said the speech would focus on the broad topic of “economic outlook”, which will likely be of interest to Fed watchers keen to hear any comment on the Fed’s possible plans on the cut.
Regarding “the unequal economy,” Sahm said Powell’s speech could certainly return to the theme, but suggested the paper presentations could be bolder to tackle the topic.
“I would watch the [papers] because that’s where they’re going to set fire, ”Sahm told Yahoo Finance. “The speech of the president, the Fed, does not want to surprise the markets.”
Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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