President Trump is concerned that the Federal Reserve’s turn towards tighter monetary policy is a mistake. Though there is much to disagree with in the president’s recent remarks — Josh Barro of Business Insider offers a measured assessment — I’m sympathetic to his dovishness. One of Trump’s arguments for a more accommodative approach is that, as he recently tweeted, “the U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals.” Over at Barron’s, Matthew C. Klein offers a somewhat different historical argument: in short, “the Fed responded much more aggressively to strong wage growth than weak wage growth,” and this asymmetry has contributed to weak productivity growth and, in turn, stagnant wages. “Had the Fed been more aggressive in trying to boost wages and consumer spending in the aftermath of the crisis,” writes Klein, “companies might have been keener to invest in themselves, which would have made workers more valuable.” Dovish Fed policy now could thus be understood as a way to make up for the mistakes of the past or, in other words, to recapture what was lost due to overblown inflation worries from the recent past.
In a similar vein, Josh Bivens of the labor-aligned Economic Policy Institute makes the case that the decline in workers’ bargaining power, which he attributes to deunionization and rising monopoly power, implies that it is all the more important for policymakers to run a high-pressure labor market, an idea I discussed in May. The president could do worse than to recast his domestic policy agenda around maintaining a high-pressure economy, and his recent Fed remarks would be in keeping with that message.