Sorry!! The article you are trying to read is not available now.
Politics And Regulation
Trading And Investing
How To Trade
How To Invest
Wall Of Worry
Hoofy & Boo
From The Buzz & Banter
MV Education center
t3 live subscriptions
Lawmakers, Economists Call for Change at the Fed
December 2, 2010 10:47 AM
The country would be much better served by central bankers focused on one monetary policy goal rather than two.
So say a growing chorus of lawmakers, economists and politicians who want change at the Fed. Specifically, these skeptics have drawn increasing public attention to what they say is an inherently contradictory dual role for the Fed: striving for maximum employment and stable prices.
Right now, Fed Head Ben Bernanke doesn’t like what he sees: a 9.6% unemployment rate and core inflation at a record low 0.6%. His solution? QE2.
However, some have decried this dual mandate since it became law in 1978 with the Full Employment and Balanced Growth Act aka Humphrey-Hawkins. In the Federal Reserve Act of 1913, Congress initially asked our central bankers to supervise banks. But, with Humphrey-Hawkins, that narrow focus broadened as lawmakers required policymakers to target employment as well as prices.
Our colleagues at
The Wall Street Journal
, for example, see an inherent contradiction at work in this dual mandate, as they recently editorialized:
“The pressure to bring down unemployment using money creation during difficult economic times will inevitably complicate the task of maintaining stable prices. As the Fed pushes money out the door, whether or not there is an economic demand for more dollars, there will be an illusion in the short-run that people are better off. But the longer-term effect may be inflationary as too much money chases too few goods.”
Instead, says the WSJ, Bernanke and his allies on the FOMC should just focus on the single task of stable prices. Congressman Paul Ryan and economist John Taylor agree, as they argued this week in an
“Quantitative easing is part of a recent Fed trend toward discretionary and away from rules-based monetary actions. The consequences of this trend are clear: The Fed's decision to hold interest rates too low for too long from 2002 to 2004 exacerbated the formation of the housing bubble. And while the Fed did help to arrest the ensuing panic in the fall of 2008, its subsequent interventions have done more long-run harm than good…
Congress should reform the Federal Reserve Act, particularly the section of the act that establishes the Fed's dual mandate. The Fed should be tasked with the single goal of long-run price stability within a clear framework of overall economic stability. Such a reform would not prevent the Fed from providing liquidity, serving as lender of last resort, or cutting interest rates in a financial crisis or a recession.”
But others aren’t so sure such a mono mandate would really have the desired impact that its proponents advocate. Harvard’s Greg Mankiw, for instance, remains unconvinced, as he noted on his
“If the Fed's mandate were different, monetary policy today might well be the same. That is, with inflation now below its target, the Fed could be pursuing QE2 even if it were operating under the proposed mono mandate. Looking ahead, the Fed believes that inflation too low, even deflation, is a larger risk than inflation too high, so it is engaging in expansionary policy to get inflation back on target.”
No positions in stocks mentioned.
END THE FED
See All Tickers »
More From Minyanville
Trading and Investing
MV Education Center
Buzz & Banter
Cooper's Market Report
The Options Strategist
Directory of Terms
T3 Live Subscriptions
Buzz and Banter.com
Ruby Peck Foundation
Terms and Conditions
Follow Minyanville on Facebook
Follow minyanville on Twitter
Follow Minyanville on Linkedin
Subscribe to Our RSS Feed
©2017 Minyanville Media, Inc. All Rights Reserved