Friday, March 31, 2023
  • About Us
  • Contact Us
Parliamentobserver
  • Ecology
  • Economy
  • Healthcare
  • Politics
  • Education
  • Business
  • Login
No Result
View All Result
Parliamentobserver
Home Economy

Mandate Drift at the Fed Is Par for the Course

Dennis Rogers by Dennis Rogers
September 29, 2022
in Economy
0
Mandate Drift at the Fed Is Par for the Course
0
SHARES
11
VIEWS
Share on FacebookShare on Twitter

Reprinted from The Hill

The Federal Reserve has lost its way. It’s pressured by political forces that want it to try its hand at everything except ordinary central banking. Monetary policymakers seem more interested in talking about climate change and race relations than inflation. The Fed’s modest tightening reflects a far too sanguine attitude towards economy-wide price pressures.

Related posts

Biden could reduce inflation, mitigate a recession, and strengthen democracy with a new EU-US trade agreement

Biden could reduce inflation, mitigate a recession, and strengthen democracy with a new EU-US trade agreement

September 29, 2022
Recent trends in global value chains and beyond

Recent trends in global value chains and beyond

September 29, 2022

Politicians are just as much to blame as technocrats. As a creature of Congress, it’s up to Congress to set the Fed’s course. The longer the Fed wanders without purpose, the worse off we’ll all be.

Mission creep and mandate drift are the rule, not the exception, at the Fed. It’s time to get the world’s most important central bank back on course. Let’s start with the basics. What is the Fed for?

Most people know the Fed has a dual mandate: maximum employment and stable prices. But few know there’s actually a third plank: moderate long-term interest rates. Policymakers, academics and legislators tacitly agreed to minimize the last part, and for good reason. Interest rates are determined by supply and demand in global capital markets. Even the Fed, with all its power, has little control over these fundamental economic forces. Yet the gentlemen’s agreement to pare down the triple mandate to the dual mandate reflects a troubling trend — the Fed is happy to go its own way, and its nominal overseers are happy to let it.

Here’s another thing: The Fed was never intended by its creators to be a central bank. During the debates over the creation of the Federal Reserve System more than 100 years ago, its proponents assured the public that the Fed would function as an augmented clearinghouse, facilitating rapid liquidity transfers to stave off nascent bank panics.

Americans knew about central banks from Europe. They didn’t like what they saw. Central banks were oligarchical, quasi-aristocratic institutions that fit poorly with the American spirit of republican democracy. We got the Fed largely because its boosters promised it wouldn’t become the very thing it is today. The Fed has been a chameleon since day one.

Currently, the battle for the Fed’s future hinges on appointments to the Board of Governors. President Biden has drawn major criticism for his choice of nominees. He deserves it. Although Sarah Bloom Raskin has withdrawn, that she was nominated in the first place is alarming. As for Lisa Cook, her respectable academic credentials and expertise on racial inequality have no relevance to monetary or financial policy. But give the president and his advisers credit for knowing the lay of the land. Given partisan deadlock in Congress, the best chance for steering the Fed comes from supporting, rather than reining in, mission creep. 

Yet there’s hope for bipartisan consensus on a refocused Fed. The power to create liquidity, allocate credit and regulate banks for ideological reasons is too tempting to ignore. As long as backdoor control over the commanding heights of finance is on the table, partisans have a very strong incentive to ratchet up their efforts at Fed capture. Everyone would be better off if we could escape this arms race. The best way to lower the stakes is to refine the Fed’s mandate and keep it within explicit, well-defined bounds.

On monetary policy, Congress should force the Fed to focus on a single dollar-denominated variable. Inflation is the most popular option. While it’s not the best conceivable rule, it’s probably the best feasible rule. But while the Fed has a self-chosen inflation target, it refuses to specify a concrete path for the dollar’s purchasing power. This means we have no benchmark for judging the Fed’s performance. Congress should correct this mistake. At the same time, it should do away with the superfluous employment and interest rate component of the mandate. If the Fed is doing its job keeping inflation low and predictable, the other factors will take care of themselves. 

On regulatory policy, Congress must clarify that the Fed’s commitment to financial stability does not permit it to tinker with everything possibly related to banks’ balance sheets. If current statutes really do permit the Fed to tinker with environmental and social policy, there are no principled limits on its power. This is obviously wrong. The best thing Congress can do for financial stability is force the Fed to focus on capital adequacy. Banks should maintain a buffer to absorb short-run financial shocks, and the Fed is an appropriate agency to police this. But anything more expansive, such as steering credit to preferred organizations and causes, is unacceptable. 

The American public never consented to the Federal Reserve as it exists. Correcting this oversight is crucial. We must decide, so long as we have a central bank, what we want it to do. The best feasible reforms tighten the Fed’s leash. A constrained Fed is a competent Fed. A drifting Fed is a danger to the public.

Previous Post

Trans-Atlantic Scorecard — April 2022

Next Post

Yes, the High Inflation Rates Will Continue in 2022

Next Post
Yes, the High Inflation Rates Will Continue in 2022

Yes, the High Inflation Rates Will Continue in 2022

RECOMMENDED NEWS

India’s Ambassador: Trudeau is an Embarrassment to Canada & India

1 year ago
Post-G7 summit, a time of great uncertainty in the global economy

Post-G7 summit, a time of great uncertainty in the global economy

9 months ago

New Interview: Russia, Ukraine, Sanctions, Food Shortages, WWIII, Great Reset, Economic Collapse

1 year ago
Explaining Free Speech to the Twitterati (Elon Musk Edition)

Explaining Free Speech to the Twitterati (Elon Musk Edition)

12 months ago

BROWSE BY CATEGORIES

  • Business
  • Ecology
  • Economy
  • Education
  • Healthcare
  • Politics

POPULAR NEWS

  • Klaus Schwab – The Most Dangerous Man in the World

    0 shares
    Share 0 Tweet 0
  • Dr. Robert Malone v WEF

    0 shares
    Share 0 Tweet 0
  • Ukraine Adopts WEF Proposals

    0 shares
    Share 0 Tweet 0
  • Trudeau’s Approval Rating Hits 12-Month Low

    0 shares
    Share 0 Tweet 0
  • Trudeau Backs Down After Banks Scream about Massive Withdrawals

    0 shares
    Share 0 Tweet 0
Parliamentobserver

We bring you latest news about ecology, economy, healthcare, politics, education, business.

Recent News

  • Supporting Ukrainian Economy: #SpendWithUkraine Initiative Launched by Ukrainian Brands
  • Starting Up: A Look at the Most Interesting Websites for Entrepreneurs and Startups
  • The Role of Healthcare Advertising in Shaping Economic and Political Decisions

Category

  • Business
  • Ecology
  • Economy
  • Education
  • Healthcare
  • Politics

Recent News

Supporting Ukrainian Economy: #SpendWithUkraine Initiative Launched by Ukrainian Brands

Supporting Ukrainian Economy: #SpendWithUkraine Initiative Launched by Ukrainian Brands

February 6, 2023
Starting Up: A Look at the Most Interesting Websites for Entrepreneurs and Startups

Starting Up: A Look at the Most Interesting Websites for Entrepreneurs and Startups

January 18, 2023
  • About Us
  • Contact Us

© 2022 parliamentobserver.com Submit news release

No Result
View All Result
  • Ecology
  • Economy
  • Healthcare
  • Politics
  • Education
  • Business

© 2022 parliamentobserver.com Submit news release

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In