Powell's high-stakes bet: More jobs but only mild inflation

FILE - In this Dec. 1, 2020, file photo, Chairman of the Federal Reserve Jerome Powell speaks during a Senate Banking Committee hearing on Capitol Hill in Washington. The U.S. economy has been showing unexpected strength in recent weeks, with barometers of hiring, spending and manufacturing all surging. (AP Photo/Susan Walsh, Pool)
FILE - In this Dec. 1, 2020, file photo, Chairman of the Federal Reserve Jerome Powell speaks during a Senate Banking Committee hearing on Capitol Hill in Washington. The U.S. economy has been showing unexpected strength in recent weeks, with barometers of hiring, spending and manufacturing all surging. (AP Photo/Susan Walsh, Pool) (Copyright 2020 The Associated Press. All rights reserved.)

WASHINGTON – With employers hiring, consumers spending and companies raising some prices, Federal Reserve Chair Jerome Powell is embarking on a high-stakes gamble.

Powell's bet is that the Fed can keep rates ultra-low even as the U.S. economic recovery kicks into high gear — and that it won't have to quickly raise rates to stop runaway inflation.

It's just the kind of gamble that in the past led some of Powell's predecessors to miscalculate and inadvertently derail the economy.

Powell and the rest of the Fed's policymaking committee plan to keep rates near zero until nearly everyone who wants a job has one, even after inflation has crept above their 2% annual target level. Faster growth raises the risk that the Fed will eventually have to respond quickly and aggressively to a sudden acceleration of prices — and potentially cause a slump, even another recession.

Getting the timing right on interest rate policy is a tricky task that has bedeviled Fed chairs for decades. Arthur Burns, who led the central bank in the 1970s, is widely blamed for allowing inflation to get out of hand after yielding to pressure from President Richard Nixon to forgo further rate hikes. Critics also argue that Alan Greenspan, whose long tenure as Fed chair ended in 2006, failed to lift rates quickly or sharply enough to prevent the housing bubble that ignited the 2008 financial crisis and the Great Recession.

Even Chair Janet Yellen's decision in December 2015 to slightly raise the Fed's key short-term rate after it had sat near zero for seven years is now seen by most economists as having been premature. The economy slowed partly as a result.

But in many ways, Powell's gamble is unique. For one thing, it's based on fundamental changes to the way the Fed pursues its goals. The central bank has always sought a delicate balance between its two mandates: Keeping prices stable and maximizing employment.

But Powell has placed a much greater emphasis on jobs than his predecessors generally did. He has also defined the Fed's goal of maximum employment more broadly: He has underscored that it includes addressing the particular challenges of low-income workers, non-college grads and people of color — something previous Fed chairs seldom mentioned.