Fed renews long-term strategy
Today, the Fed released an update on its long-term monetary policy goals.
- On maximum employment, the FOMC emphasizes that maximum employment is a broad and inclusive goal and reports that its policy decision will be informed by its “assessments of the employment deficit from its maximum level.” The original document referred to “deviations from the maximum level.”
- On price stability, the FOMC adapts its strategy to achieve its longer-term inflation target of 2 percent by noting that it “seeks to achieve inflation that averages 2 percent over time.” To this end, the amended statement states that “following periods when inflation continues to fall below 2%, appropriate monetary policy is likely to aim to bring inflation above 2% moderately for some time to come.. “
- The update of the strategy statement explicitly recognizes the challenges for monetary policy posed by a persistently low interest rate environment. Here in the United States and around the world, monetary policy interest rates are more often limited by their effective lower limit than in the past.
Price stability
Fed Chairman Jerome Powell would not recognize price stability if it jumped out of the crowd and spit grapefruit juice in his eye.
Somehow the Fed is committed to a 2% inflation target without explaining why the target should be 2% in the first place.
In addition, inflation is below 2% because the Fed ignores housing prices, employers’ health care costs, education and stock market bubbles.
Compensate for errors
The idea that one can compensate for mistakes by further mistakes in the other direction is pure nonsense.
It’s like a doctor said “The last three months we have been giving you too little medicine, so we will give you too much for the next three months.“
Think of alternatives this way.
No economic benefit to inflation
My challenge to Keynesians “Prove rising prices provide an overall economic advantage” is unanswered.
There is no economic advantage to inflation, but there are winners and losers. The winners are those with first access to money, namely the banks and the already rich.
The Fed complains about income inequality and wealth, but they are the primary source.
BIS deflation research
The BIS conducted a historical study and found that routine price deflation was not a problem at all.
“Deflation can actually increase production. Lower prices increase real income and wealth. And they can also make export goods more competitive, ”Stated the study.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations
Deflation of axils
It is deflation of asset bubbles that is harmful. When asset bubbles burst, debt deflation the results.
Serum misguided attempts by central banks to defeat routine deflation of consumer prices is what is causing the destructive build-up of unproductive debt and asset bubbles that eventually collapses.
The problem is not deflation, it’s the Fed’s wrong attempt to prevent it.
Mish
