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With the appointment of Jerome Powell as the next chair of the United States Federal Reserve Board, Donald Trump has made perhaps the most important single decision of his presidency. It is a sane and sober choice that heralds short-term continuity in Fed interest-rate policy, and perhaps a simpler and cleaner approach to regulatory policy.Although If that seems hyperbolic, it is only because most of us don't really pay attention to the Fed on a day-to-day basis. At the same time, despite a strongly growing U.S. and global economy, inflation remains mystifyingly low. This has made it extremely difficult for the Fed to normalize policy interest rates (still only 1 percent) so that it has room to cut them when the next recession hits, which it inevitably will. If Powell and the Fed cannot normalize interest rates before the next recession, what will they do? The U.S. Treasury owns the Fed, and can carry out such debt purchases perfectly well by itself.Given that monetary policy is the first and best line of defense against a recession, an urgent task for the new chair is to develop a better approach.Bank regulation is also part of the Fed's mandate.
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