The US Federal Reserve current chair Jerome Powell and the nominee for the position Judy Sheldon seem not to agree on the gold standard
Federal Reserve Chair Jerome Powell is not a fan of returning the U.S. to the gold standard—something Fed nominee Judy Shelton advocates.
Testifying before the House Financial Services Committee on Wednesday, Powell responded to a question from Rep. Jennifer Wexton (D-Va.) on whether he would support pegging the U.S. dollar to the price of gold.
“No, I don’t think that would be a good idea,” Powell replied, noting that “no other country uses it.”
A return to the gold standard, which the U.S. used from 1879 to 1971, would allow consumers, banks and businesses to exchange a dollar for actual gold—but it would leave policymakers with less ability to respond to economic changes.
“You’ve assigned us the job of two direct real economy objectives: maximum employment and stable prices,” Powell said Wednesday. “If you
us to stabilize the dollar to the price of gold, monetary policy could do that, but the other things would fluctuate and we wouldn’t care. We wouldn’t care if employment went up or down.”
“This is why every country in the world abandoned the gold standard some decades ago,” he added.
Powell emphasized that his disagreement with Shelton’s view should not be construed as a comment on her fitness to serve on the Fed.
“We would never comment on the nominees. We are on the sidelines with that,” he said.
Shelton isn’t the only Fed nominee to support returning to gold. Stephen Moore and Herman Cain, both of whom have withdrawn their nominations, also supported the idea.
But Why do Shelton and others want to return to the gold standard?
Shelton argues it would mark a return to stability and hamper other governments from currency manipulation. In a Wall Street Journal opinion piece, she wrote “the classical gold standard established an international benchmark for currency values, consistent with free-trade principles.”
She added, “Today’s arrangements permit governments to manipulate their currencies to gain an export advantage.”
Others argue that the gold standard would keep U.S. spending under control, because the country would be limited in its ability to issue new money.
Why do mainstream economists believe it’s a fringe view?
The U.S. economy has grown in complexity since 1971 and certainly since 1933, making the policy less feasible than in earlier eras. And a return to the gold standard could in effect tie the Fed’s hands because the central bank would be focused on gold prices, which are partially based on how much of the commodity is being mined.
“A gold standard regime would be a disaster for any large advanced economy,” said University of Chicago economist Anil Kashyap. Supporting the gold standard “implies macroeconomic illiteracy.”
The price of gold, by the way, is up more than 11% this year, passing $1,400 an ounce this week. Bearish investors have been rushing to buy gold the past few months amid concerns that global growth is slowing, especially if U.S.-China trade tensions worsen. Gold jumped further Wednesday as investors saw Mr. Trump’s Fed picks as yet another sign the U.S. central bank won’t be raising interest rates anytime soon.
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