By Howard Schneider
WASHINGTON (Reuters) – For much of the past 17 years the Federal Reserve has been the central player in U.S. economic policy, throwing multi-trillion-dollar safety nets under the financial system, offering nearly a decade of ultra-cheap money, jumping redlines during the COVID-19 pandemic, and delving more into areas like equity and climate change.
But that expansive role has now shrunk to one of terse policy statements, a meat-and-potatoes debate over interest rates, a declining stash of bonds, and a growing possibility that Fed Chair Jerome Powell may be remembered both as the man who got the U.S. through the economic crisis triggered by the pandemic and the one who made central banking boring again.
Former St. Louis Fed President James Bullard was on the policymaking team that saw the central bank’s role expand during the 2007-2009 financial crisis, watched as it mushroomed again during the pandemic and sees it now morphing back into something more normal.
In recent years “we had to go back to kind of heavy-duty inflation fighting that is reminiscent of the old days when you did not worry about the zero lower bound, you did not worry about balance sheet policy,” Bullard said. “It is kind of plain vanilla in that respect. Times have changed.”
Bullard, who is now the dean of the Mitch Daniels School of Business at Purdue University, will give the opening address on Monday at a conference in Washington about the Fed’s monetary policy framework and its strategy for achieving its mandate to foster price stability and maximum employment.
For all the potential controversy around the Fed posed by Donald Trump’s victory in the Nov. 5 election – hints, for example, that the U.S. president-elect might rekindle his first-term feud with Powell by trying to fire or undercut him – there’s an alternate possibility that the framework discussion highlights: That with inflation coming under control, the economy growing, and interest rates in their longer-run historic range, the central bank may be moving somewhat offstage, with its steady focus on inflation now the important thing for the incoming administration to sustain.
SUPER-LOW RATES NO LONGER NEEDED
Trump’s initial picks for his economic team have been more conventional than not. The conference in Washington, which is organized by the American Institute for Economic Research, includes a keynote address by Fed Governor Christopher Waller, an appointee from Trump’s first term in the White House who, like Fed Governor Michelle Bowman, would offer an in-house option for new leadership when Powell’s term as central bank chief expires in May 2026.
