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    Federal Reserve Keeps Rates Unchanged but Cites ‘Progress’ Toward Goals

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    The central bank gave the clearest hint yet that it will soon begin to shift bond-buying from emergency mode.The chair, Jerome H. Powell, said the Fed was keeping interest rates unchanged and would continue to buy large amounts of government debt, but suggested that these purchases could taper off as recovery continued.Stefani Reynolds for The New York TimesThe Federal Reserve on Wednesday offered the most direct signal yet that it will begin to dial back its emergency support for the economy in the near future, as its chair, Jerome H. Powell, made it clear that policymakers will do so deliberatively and with plenty of warning.Fed officials voted to leave both of their key policy supports intact before wrapping up their two-day July meeting, holding interest rates near zero and continuing government-backed bond purchases unabated. Those two tools fuel economic demand by making money cheap to borrow and spend.But they spent the meeting debating when and how to slow the bond-buying program, which is expected to be the first step toward a more normal policy setting as the economy rebounds strongly from its pandemic stupor. A decision isn’t imminent, but officials used their July policy statement to signal that one is coming.The Fed had said in December that it would keep buying bonds at a steady pace — $120 billion per month — until it had made “substantial” further progress toward its two targets, stable inflation and maximum employment.“Since then, the economy has made progress toward these goals, and the committee will continue to assess progress in coming meetings,” the Fed’s policy-setting committee said in its postmeeting statement on Wednesday.Mr. Powell offered an even more detailed outlook for the purchase program during his subsequent news conference. He explained that officials had not yet decided on the pace or structure of the coming slowdown, and that there were a “range of views” on when it should happen.“We’re going to continue to try to provide clarity as appropriate,” Mr. Powell said, adding that this meeting had involved the first deep-dive discussion on those issues.Mr. Powell delivered another message: The Fed isn’t ready to withdraw support just yet. He said that while the economy was progressing toward “substantial” progress, “we have some ground to cover on the labor market side.”Investors have been keenly watching for any news on when and how the Fed will begin to withdraw from buying assets, worried that the announcement of a tapering program might whipsaw markets. Fed critics have been asking why the central bank continues to buy bonds, fueling an already-scorching housing market and pushing up sky-high stock prices.Fed officials are trying to strike a balance, ensuring they are prepared to slow stimulus measures as the economy strengthens while avoiding an abrupt pullback. The latter could undermine the Fed’s credibility and potentially roil markets, causing lending to dry up and slowing the recovery when millions of prepandemic jobs are still missing and risks to the economy persist.“They don’t want to cause a sharp and fast increase in interest rates — that would be detrimental,” said Roberto Perli, head of global policy research at Cornerstone Macro. “The labor market is still not where it should be.”Lingering threats to the outlook have been underscored by rising coronavirus cases in the United States and around the world tied to the Delta variant.Mr. Powell acknowledged risks from the variant, but he suggested that any economic pullback it drove might not be as severe as last year’s. Still, he said, “it might weigh on the return to the labor market,” noting that the Fed will be monitoring that “carefully.”But the Fed chair conveyed a generally optimistic tone about the economy on Wednesday.While he pointed out that the labor market had a lot of room left to heal, he also suggested that workers were lingering on the sidelines because they were afraid of the virus, had caregiving duties or were receiving generous unemployment insurance benefits. Those factors should fade as life returns to normal.The United States is on a path to a strong labor market, and “it shouldn’t take too long, in macroeconomic time, to get there,” Mr. Powell said.He discussed at length another reality of the reopening era: rising prices. As economic growth roars back, with strong consumer spending supported by repeated government stimulus checks, inflation is surging. That is partly the result of data quirks, but also because demand for washing machines, electronics, cars and housing is outstripping what producers can supply.The Consumer Price Index picked up by 5.4 percent in June compared with a year earlier, the quickest pace since 2008. The Fed’s preferred inflation gauge has been slightly more muted, at 3.9 percent in May, but that, too, is well above the central bank’s 2 percent average inflation goal.“Inflation has increased notably” Mr. Powell said, adding that it is likely to remain elevated in coming months. But as supply bottlenecks abate, he said, “inflation is expected to drop back toward our longer-run goal.”Price gains could turn out to be higher and more persistent than Fed officials expect, Mr. Powell acknowledged. But expectations of where prices might head next seem consistent with the Fed’s goal, he said.When Fed officials say they expect today’s pressures to prove “transitory,” Mr. Powell said, they mean that increases today will not lead to ever-higher prices down the road.To put it even more plainly: A bag of flour might cost 5 cents more this year, but if the increase is transitory, it will not keep going up 5 cents with each passing year.“The increases will happen — we’re not saying they will reverse,” Mr. Powell said, but “the process of inflation will stop.”For now, officials are monitoring price increases but also staying focused on a different set of risks: About 6.8 million jobs are still missing compared with February 2020 levels. Workers are taking time to sort back into suitable employment, and the central bank wants to make sure the economic recovery is robust as they try to do that.Even when the Fed begins to dial back bond-buying, interest rates are likely to remain low. Long-running forces, including the aging population and rising inequality, have pushed them down naturally, and the central bank is expected to keep its main policy rate — the federal funds rate — at rock bottom, where it has been since March 2020.Officials have signaled that, barring a sustained burst in inflation or financial stability risks, they would like to leave interest rates near zero until the job market has returned to full employment. Their latest economic projections, released in June, suggested that most officials did not expect the economy to meet that high bar until 2023.Mr. Powell reiterated a commitment to seeing the recovery through.“The labor market has a ways to go,” he said. “We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery.” More

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    Federal Reserve Chair to Testify Before Congress

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    When Jerome H. Powell, the Federal Reserve chair, appears before the Senate Banking Committee on Thursday, he will be testifying at a fraught moment both politically and economically, given the recent rise in inflation.The Consumer Price Index jumped 5.4 percent in June from a year earlier, the biggest increase since 2008 and a larger move than economists had expected. Price pressures appear poised to last longer than policymakers at the White House or Fed anticipated.In testimony on Wednesday before the House Financial Services Committee, Mr. Powell attributed rapid price gains to factors tied to the economy’s reopening from the pandemic, and indicated in response to questioning that Fed officials expected inflation to begin calming in six months or so.He acknowledged that “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.For now, he voiced comfort with the central bank’s relatively patient policy path even in light of the hotter-than-expected price data. He said that the labor market was improving but that “there is still a long way to go.”He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.” More

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    Inflation Likely to Remain High in Coming Months, Fed Chair Powell Says

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    Price gains are up “notably,” Jerome Powell told House lawmakers. That’s because of several temporary factors.Jerome H. Powell told House lawmakers that inflation had increased “notably” in the country’s reopening from the pandemic and would most likely stay higher in the next months before moderating.Pool photo by Graeme JenningsJerome H. Powell, the Federal Reserve chair, told House lawmakers on Wednesday that inflation had increased “notably” and was poised to remain higher in coming months before moderating — but he gave no indication that the recent jump in prices will spur central bankers to rush to change policy.The Fed chair attributed rapid price gains to factors tied to the economy’s reopening from the pandemic, and indicated in response to questioning that Fed officials expected inflation to begin calming in six months or so.Mr. Powell testified before the Financial Services Committee at a fraught moment both politically and economically, given the recent spike in inflation. The Consumer Price Index jumped 5.4 percent in June from a year earlier, the biggest increase since 2008 and a larger move than economists had expected. Price pressures appear poised to last longer than policymakers at the White House or Fed anticipated.“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Mr. Powell said in his opening remarks.He later acknowledged that “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.Mr. Powell attributed the continuing pop in prices to a series of factors: temporary data quirks, supply constraints that ought to “partially reverse” and a surge in demand for services that were hit hard by the pandemic.He said longer-run inflation expectations remained under control — which matters because inflation outlooks help shape the future path for prices. And he made it clear that if the situation got out of hand, the Fed would be prepared to react.“We are monitoring the situation very carefully, and we are committed to price stability,” Mr. Powell said. He added that “if we were to see that inflation were remaining high and remaining materially higher above our target for a period of time — and that it was threatening to uproot inflation expectations and create a risk of a longer period of inflation — then we would absolutely change our policy as appropriate.”For now, the Fed chair voiced comfort with the central bank’s relatively patient policy path even in light of the hotter-than-expected price data. He said that the labor market was improving but that “there is still a long way to go.” He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.”Fed officials are debating when and how to slow their $120 billion of monthly government-backed bond purchases, which would be the first step in moving policy away from an emergency mode. Those discussions will continue “in coming meetings,” Mr. Powell said.The central bank is also keeping its policy interest rate near zero, which helps borrowing remain cheap for consumers and businesses. Officials have set out a higher standard for lifting that rate from rock bottom: They want the economy to return to full employment and inflation to be on track to average 2 percent over time.The Fed’s guidance states that officials want to see inflation “moderately” above 2 percent for a time, and Mr. Powell was asked on Wednesday what that standard meant when price pressures were so strong.“Inflation is not moderately above 2 percent — it’s well above 2 percent,” Mr. Powell said of the current data. “The question will be where does this leave us in six months or so — when inflation, as we expect, does move down — how will the guidance work? And it will depend on the path of the economy.”Raising rates is not yet up for discussion, officials have said publicly and privately. The bulk of the Fed’s policy-setting committee does not expect to lift borrowing costs until 2023, based on its latest economic projections.Given Mr. Powell’s comments, that watchful stance is unlikely to shift, economists said.“We still don’t think higher inflation will result in a quicker policy tightening,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote in response to Mr. Powell’s prepared testimony. “Asset purchases probably won’t start to be tapered until next year, with interest rates not raised until the first half of 2023.”The Fed is weighing the risks of higher inflation against the huge number of people who remain out of work. Congress has tasked the central bank with fostering both stable prices and maximum employment. While price pressures have picked up markedly, there are still 6.8 million fewer jobs than there were in February 2020, the month before pandemic layoffs started in earnest.That so many people remain out of work is something of a surprise, because employers report widespread labor shortages, and wage increases and signing bonuses abound as they try to lure talent.“Labor shortages were often cited as a reason firms could not staff at desired levels,” according to the Fed’s latest “Beige Book” of anecdotal economic reports from business contacts across its 12 districts. “All districts noted an increased use of nonwage cash incentives to attract and retain workers.”Mr. Powell said he expected people to return to work as health concerns abated and other issues keeping people sidelined faded, and he predicted that “job gains should be strong in coming months.” More

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    Fed Unity Cracks as Inflation Rises and Officials Debate Future

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    Federal Reserve officials are debating what to do as price risks loom, even as its leaders and the White House say today’s surge will most likely cool.Federal Reserve officials spoke with one voice throughout the pandemic downturn, promising that monetary policy would be set to full-stimulus mode until the crisis was well and truly behind America. Suddenly, they are less in sync.Central bankers are increasingly divided over how to think about and respond to emerging risks after months of rising asset values and faster-than-expected price increases. While their political counterparts in the White House have been more unified in maintaining that the recent jump in price gains will fade as the economy gets past a reopening burst, Washington as a whole is wrestling with how to approach policy at a moment of intense uncertainty.The Fed’s top officials, including Chair Jerome H. Powell, acknowledge that a lasting period of uncomfortably high inflation is a possibility. But they have said it is more likely that recent price increases, which have come as the economy reopens from its coronavirus slumber, will fade.Other officials, like James Bullard, president of the Federal Reserve Bank of St. Louis, have voiced more pointed concern that the pickup in prices might persist and have suggested that the Fed may need to slow its support for the economy more quickly as a result.Unwanted and persistent inflation seemed like a fringe possibility earlier this year, but it is becoming a central feature of economic policy debates as prices rise for used cars, airline tickets and restaurant meals. For the Fed, the risk that some of the current jump could last is helping to drive the discussion about how soon and how quickly officials should slow down their enormous government-backed bond-buying program — the first step in the central bank’s plan to reduce its emergency support for the economy.Fed officials have said for months that they want to achieve “substantial further progress” toward their goals of full employment and stable inflation before slowing the purchases, and they are just beginning to discuss a plan for that so-called taper. They are now wrestling with the reality that the nation is still missing 7.6 million jobs while the housing market is booming and prices have moved up faster than expected, prompting a range of views to surface in public and private.The bubbling debate reinforces that the central bank’s easy money policies won’t last forever, and sends a signal to markets that officials are closely attuned to inflationary pressures.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” said Jerome Powell, the Fed chair.Al Drago/The New York Times“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, who is president of the Federal Reserve Bank of Dallas and is one of the people pushing for the Fed to soon begin to pull back support. “In a situation this complex and this dynamic, if I weren’t seeing debate and disagreement, and there were unanimity, it would make me nervous.”The central bank’s 18 policy officials roundly say that the economy’s path is extremely hard to predict as it reopens from a once-in-a-century pandemic. But how they think about inflation after a string of strong recent price reports — and how they feel the Fed should react — varies.Inflation has spiked because of statistical quirks, but also because consumer demand is outstripping supply as the economy reopens and families open their wallets for dinners out and long-delayed vacations. Bottlenecks that have held up computer chip production and home-building should eventually fade. Some prices that had previously shot up, like those for lumber, are already starting to moderate.But if the reopening weirdness lasts long enough, it could cause businesses and consumers to anticipate higher inflation permanently, and act accordingly. Should that happen, or if workers begin to negotiate higher wages to cover the pop in living costs, faster price gains could stick around.“A new risk is that inflation may surprise still further to the upside as the reopening process continues, beyond the level necessary to simply make up for past misses to the low side,” Mr. Bullard said in a presentation last week. The Fed aims for 2 percent inflation as an average goal over time, without specifying the time frame.Other Fed officials have said today’s price pressures are likely to ease with time, but have not sounded confident that they will entirely disappear.“These upward price pressures may ease as the bottlenecks are worked out, but it could take some time,” Michelle Bowman, one of the Fed’s Washington-based governors, said in a recent speech.The Fed’s top leadership has offered a less alarmed take on the price trajectory. Mr. Powell and John C. Williams, president of the Federal Reserve Bank of New York, have said it is possible that prices could stay higher, but they have also said there’s little evidence so far to suggest that they will.“A pretty substantial part — or perhaps all — of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” Mr. Powell said during congressional testimony on June 22.Mr. Williams has said there is even a risk that inflation could slow. The one-off factors pushing up prices now, like a surge in car prices, could reverse once supply recovers, dragging down future price gains.“You could see inflation coming in lower than expected,” he said last week.Which take on inflation prevails — risk-focused, watchful, or less fretful — will have implications for the economy. Officials are beginning to talk about when and how to slow down their $120 billion in monthly bond-buying, which is split between $80 billion in Treasury securities and $40 billion in government-backed mortgage debt.The Fed has held a discussion about slowing bond-buying before, after the global financial crisis, but that came during the rebound from a deep but otherwise more standard downturn: Demand was weak and the labor market climbed slowly back. This time, conditions are much more volatile since the recession was an anomaly, driven by a pandemic instead of a financial or business shock.In the current setting, officials who are more worried about prices getting out of hand may feel more urgency to dial back their economic stimulus, which stokes demand.“This is a volatile environment; we’ve got upside inflation risk here,” Mr. Bullard said at a separate event last week. “Creating some optionality for the committee might be really useful here, and that will be part of the taper debate going forward.”Mr. Kaplan said he had been vocal about his preferences on when tapering should start during private Fed discussions, though publicly he will say only that he would prefer to start cutting policy support “sooner rather than later.”“I see the debate and disagreement as the Fed at its best,” said Robert S. Kaplan, a Fed official who is pushing to start easing support.Edgard Garrido/ReutersHe thinks moving more quickly to slow bond purchases would take a “risk management” approach to both price gains and asset market excess: reducing the chances of a bad outcome now, which might mean the Fed doesn’t have to raise interest rates as early down the road.Several officials, including Mr. Kaplan and Mr. Bullard, have said it might be wise for the Fed to slow its purchases of mortgage debt more rapidly than they slow bond-buying overall, concerned that the Fed’s buying might be contributing to a hot housing market.But even that conclusion isn’t uniform. Lael Brainard, a Fed governor, and Mary C. Daly, president of the Federal Reserve Bank of San Francisco, have suggested that the mortgage-backed purchases affect financial conditions as a whole — suggesting they may be less keen on cutting them back faster.The price outlook will also inform when the Fed first raises interest rates. The Fed has said that it wants to achieve 2 percent inflation on average over time and maximum employment before lifting borrowing costs away from rock bottom.Rate increases are not yet up for discussion, but Fed officials’ published forecasts show that the policy-setting committee is increasingly divided on when that liftoff will happen. While five expect rates to remain unchanged through late 2023, opinions are otherwise all over the place. Two officials see one increase by the end of that year, three see two, three see three and another three see four. Two think the Fed will have raised rates six times.Both Fed policy debates will affect financial markets. Bond-buying and low rates tend to pump up prices on houses, stocks and other assets, so the Fed’s pullback could cause them to cool off. And they matter for the economy: If the Fed removes support too late and inflation gets out of control, it could take a recession to rein it in again. If it removes its help prematurely, the slowdown in demand could leave output and the labor market weak.The Fed will be working against a changing backdrop as it tries to decide what full employment and stable prices mean in a post-pandemic world. More money from President Biden’s $1.9 trillion economic aid bill will soon begin to flow into the economy. For example, the Treasury Department in July will begin depositing direct monthly payments into the accounts of millions of parents who qualify for an expanded child tax credit.But expanded unemployment insurance benefits are ending in many states. That could leave consumers with less money and slow down demand if it takes would-be workers time to find new jobs.As the trends play out, White House officials will also be watching to see whether the economy is hot or not. The administration is trying to pass a follow-up fiscal package that would focus on longer-term investments, and Republican opposition has centered partly on inflation risks.For Mr. Kaplan at the Fed, the point is to be watchful. He said it was important to learn from the lessons of the post-2008 crisis recovery, when monetary policy support was removed before inflation had meaningfully accelerated — but also to understand that this rebound is unique.“Realizing that this is a different situation is a wise thing,” Mr. Kaplan said. More

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    Top U.S. Officials Consulted With BlackRock as Markets Melted Down

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    The world’s largest asset manager was central to the pandemic crisis response. Emails and calendar records underscore that critical role.As Federal Reserve Chair Jerome H. Powell and Treasury Secretary Steven Mnuchin scrambled to save faltering markets at the start of the pandemic last year, America’s top economic officials were in near-constant contact with a Wall Street executive whose firm stood to benefit financially from the rescue. More

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    The Federal Reserve chair says the United States needs ‘more inclusive prosperity.’

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    Jerome H. Powell, the Federal Reserve chair, said on Tuesday that the central bank was focused on returning the economy to full strength, and he emphasized that the Fed would be more ambitious and expansive in its understanding of what that meant.Speaking before House lawmakers on Tuesday afternoon, Mr. Powell emphasized that the Fed was looking at maximum employment as a “broad and inclusive goal” — a standard it set out when it revamped its policy framework last year. That, he said, means the Fed will look at employment outcomes for different gender and ethnic groups.“There’s a growing realization, really across the political spectrum, that we need to achieve more inclusive prosperity,” Mr. Powell said in response to a question, citing lagging economic mobility in the United States. “These things hold us back as an economy and as a country.”The Fed cannot solve issues of economic inequality itself, he said. Congress would need to play a role in establishing “a much broader set of policies.”But Mr. Powell’s explanation of full employment came as many lawmakers wanted to talk about the second of the central bank’s two goals: stable inflation. The Fed chair was quizzed repeatedly about the recent pickup in price gains, with Republicans warning that the trend could become dangerously entrenched — even quoting statistics about recent jumps in bacon and used-car prices — as Democrats warned that the central bank should not be quick to react to the price pressures.“There’s sort of a perfect storm of very strong demand and weak supply due to the reopening of the economy,” Mr. Powell said, adding that much or all of the recent overshoot in inflation came from short-term bottlenecks. “They don’t speak to a broadly tight economy.”Mr. Powell added that price jumps have been bigger than expected and that the Fed was monitoring them closely, but he said they were still expected to wane over time. He also acknowledged that economic data was uncertain now, given quirks in supply and demand as businesses reopen.“We have to be very humble about our ability to really try to draw a signal out of it,” Mr. Powell said.He said he had “a level of confidence” that strong price gains would be temporary but was not certain when bottlenecks would clear up. Nevertheless, the goods and services categories where costs are picking up quickly, like restaurants and travel, are clearly tied to the pandemic.“It should not leave much of a mark on the ongoing inflation process,” he said. More

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    The Economic Gauges Are Going Nuts. Jerome Powell Is Taking a Longer View.

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    Despite the current confusion, his outlook, based on hard lessons from the 2010s, is essentially optimistic.Jerome Powell, the Federal Reserve chair, made clear that he believes the fundamentals of the economy are stable, even though the pandemic has thrown it for a loop.Eric Baradat/Agence France-Presse — Getty ImagesThe economy is changing so fast that just making sense of it is no easy task. Within a few months, the United States has gone from no jobs and depressed prices to widespread labor shortages and uncomfortably high inflation.In this most unusual recovery, the signals that economic policymakers use to inform their decisions are going haywire. What is one to make, for example, of the combination of strong growth in jobs and wages paired with millions of working-age people who seem to have no interest in returning to the work force?It’s easy to imagine Jerome Powell, the Federal Reserve chair, as a pilot in unfamiliar territory with malfunctioning gauges. He’s doing what you’d want a pilot to do in those circumstances: looking to the horizon.A recurring theme on Wednesday, as he spoke to the news media after a Fed policy meeting, was his focus on the things that haven’t changed about the economy, the lessons learned in the expansion of the 2010s. He is resisting the urge to conclude that the pandemic fundamentally changed the most important dynamics.To Mr. Powell’s mind, these are those lessons: American workers are capable of great things. The labor market can run hotter for longer than a lot of economists once assumed, with widely beneficial results. There are many powerful structural forces that will keep inflation in check. And for those reasons, the Fed should move cautiously in raising interest rates, rather than risk choking off a full economic recovery too soon.His is a profoundly optimistic view of the coming years. He does not see the labor shortages of 2021 as evidence of lasting scars to the potential of American workers, but rather as a reflection of the difficulty of reopening large sectors of the economy and reallocating labor after a pandemic.“You look through the current time frame and look one and two years out — we’re going to be looking at a very, very strong labor market,” Mr. Powell said, describing an environment of low unemployment, high rates of participation and “rising wages for people across the spectrum.”And he was dismissive of the possibility that spikes in both wages and prices would turn into a lasting 1970s-style spiral.“Is there a risk that inflation will be higher than we think? Yes,” Mr. Powell said. “We don’t have any certainty about the timing or the extent of these effects from reopening.”But he added: “We think it’s unlikely they would materially affect the underlying inflation dynamics that the economy has had for a quarter of a century. The underlying forces that have created those dynamics are intact.” These include globalization and an aging world population.If you squint, you can even see the application of lessons from three big missteps in Mr. Powell’s career as a central banker.In 2013, as a Fed governor, he helped push Chair Ben Bernanke toward “tapering” the pace of bond-buying in the Fed’s quantitative easing program, which created global financial tremors and led the central bank to reverse course. (In one sign of how deep the scars of that experience are, Mr. Powell carefully said on Wednesday that at this meeting, they merely talked about talking about tapering their current Q.E. purchases, which was itself a subtle shift from his previous guidance that it was not yet time to talk about talking about tapering.)In 2015, Mr. Powell supported a decision to begin raising interest rates to prevent inflation from taking off. This also caused global economic problems — and an under-the-radar economic slowdown in the United States — even though with hindsight the American job market had lots of remaining potential to improve.And in 2018, under his leadership, the Fed raised interest rates four times despite an absence of inflationary pressure. The last of these, especially, came to look like a mistake within days, and Mr. Powell soon reversed course.At each of those junctures, the people who argued that the American labor market was already at or near its potential — a fundamentally pessimistic view about the number of people who could be coaxed to work by the right mix of compensation and job opportunities — looked with hindsight to be wrong. So were the people who routinely predicted that an outburst of problematic inflation was right around the corner.The risk with this approach is that Mr. Powell is, in effect, fighting the last battle — applying the lessons of those episodes to a different economic environment.There are, after all, quite a few differences between then and now. Most significantly, fiscal policymakers have acted on a much larger scale now, and the trillions of dollars coursing through the economy surely create different types of inflation risks. All else being equal, looser fiscal policy — larger continuing deficits — implies that tighter monetary policy is needed to keep a lid on inflation.Moreover, there are some signs — early, but striking — of a more lasting change in the power dynamics between capital and labor. Workers appear to have the upper hand with employers in ways they haven’t in a generation.This could turn out to be a temporary result of the post-pandemic moment, and is mostly positive (Mr. Powell explicitly characterizes higher wages and more expansive job opportunities as a good thing). But if we are returning to a more 1960s-style dynamic in which workers demand pay that is higher than productivity gains would imply are justified, and employers readily give it to them and raise their prices, it will mean that Mr. Powell’s Fed is on track to get behind the curve on inflation.Ultimately, then, the question of whether the Fed is on a wise course will depend on whether the pandemic fundamentally changed things, or just created a miserable year for the economy, after which things return to normal.One trait Mr. Powell has shown, including in the 2013, 2015 and 2018 episodes, is a willingness to pivot when evidence emerges that his judgment is wrong. The best hope for the economy of the 2020s is that his pilot’s view of the horizon is correct. The second best is that if it turns out to be wrong, he adjusts quickly. More