Now consider current economic conditions. Housing prices have started to fall again and are dropping in 29 out of 30 leading cities. Aggregate credit is also dropping and will continue to contract as the nation finishes a long period of deleveraging. Within this lens, it easier to understand why Fed Chairman Ben Bernanke is still pursuing accommodative policy.
But if you wanted the Fed to stop, a single mandate for price stability is the wrong tool to use. Inflation by the Fed’s preferred measure (the core PCE price index) is now below 1% and could be zero in a year’s time—well below the global consensus among central bankers that inflation should be about 2%. A myopic price-stability mandate could actually lock the Federal Reserve into quantitative easing for years, given its inflation target. This would be an odd result for a movement that is hoping to persuade the Fed to do less, not more.” Read more.
“The Fed’s Dual Mandate Is Not The Problem”
Wall Street Journal, December 28, 2010.
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