At the annual gathering of central bankers and economists in Jackson Hole, Wyoming, this year, all eyes were on U.S. Federal Reserve Chair Jerome Powell. Last year at the Jackson Hole conference, Powell had announced a new era in economic policy. This was premised on the assumption that we were in an era of low inflation. The Fed would, in the future, target average inflation, offsetting periods of low inflation below 2 percent per year with periods of more rapid price increase. Today, that world seems very remote. Inflation in the United States is running at more than 8 percent, the most rapid rate since the 1970s. Given this extraordinary turnaround, Powell needed to signal that the Fed was serious about stopping inflation.
How to make the case? Jackson Hole is a meeting of central bankers and economists. But in making his stand, Powell invoked neither economic theory nor econometrics. Instead, he summoned history.
