Friday, 22 September 2017


Op-ed: Losing patience with the Fed

March 19, 2015
in Blog

It comes perhaps as no surprise that yesterday’s meeting of the ten voting members of the Federal Open Market Committee (FOMC) ended in an anti-climactic manner, providing no real clarity about the future of interest rates at the Federal Reserve. The removal of the word “patient” simply means that the Fed “has the option to consider whether to raise interest rates or not at its June 16 to 17 meeting.”

In an op-ed titled “Losing patience with the Fed,” published this morning in The Hill, Dr. Judy Shelton explains that there are several things wrong with the way Janet Yellen’s Federal Reserve is operating, way beyond its apparent ambiguity of action. To begin, Shelton asks an important question: should a government agency by allowed to fix the price of capital?

With that in mind, she explores a several important points, three of which will be summarized below:

1)    Dr. Shelton questions whether Janet Yellen’s working definition of “dual mandate” is accurate. She notes that “the economy’s long-run potential to increase production is not a matter of choosing — based on a presumed tradeoff — between high employment and stable money.” As former Fed Chairman Paul Volker noted, stable prices are good for employment.

2)    Next, Shelton goes on to make an important clarification by noting that price stability does not mean the reduction of the dollar’s purchasing power by 20 percent per decade (i.e. the Fed’s targeted 2 percent annual inflation.) Accurately, she goes on to call the notion of “stable inflation” an oxymoron.

3)    In the end, pointing out a trend that she has previously identified, Shelton notes the problematic and ever growing politicization of the Fed, an allegedly independent government agency. As Shelton states in her closing:

It should start with basic principles: Money is meant to serve as a reliable tool for measuring value in a free-market economy and to provide a dependable store of value. Money should not be used as an instrument of government policy.

To read Dr. Shelton’s post in its entirety, click here.