I really can’t say in which universe allowing NGDP to plunge and inflation expectations to turn negative (deflation) in spurts and starts for 18 months straight is the equivalent of maintaining price stability, or in which universe making a statement about the inflation target without describing it as a ceiling or floor, or based on which index equals clearly stating the intent of monetary policy. In this universe, however, I would venture a guess that none of it is true. Do we really know any more about what the Fed is doing today than we did three years ago? Has it explained what it means to undershoot the inflation target? Will it make it up or just let it slide if inflation is blow the target?
Really, it is all a game of semantics, like arguing the meaning of the word is. One can say the target is 2% inflation, but from which price level on which index? Does letting it turn negative mean that the current price level wasn’t appropriate and that the 2% target is really meant for something lower? Really, if we are going to be transparent and at least semi-accountable, shouldn’t we know the specifics about when the Fed isn’t meeting what it says it intends and when we can expect some remedy for the situation? I guess it would also depend on whether or not we’re going to give it pass on the output gap, and allow for some other substitute description of the Fed’s purpose than what’s written in the law, which I don’t recall saying anything about an undue obsession with inflation at the cost of all else. If congress expresses something that is to be achieved in the form of legislation that is signed into law, and the Fed says what it is doing will satisfy the mandate, shouldn’t we expect it to actually achieve that objective, or know when it plans to do so? If it doesn’t meet that objective with its current procedure, shouldn’t we know when whatever the current policy is will be declared unworkable and replaced with something else?
Actually, I think the Fed has an awful lot of explaining to do about how we got into to this god awful monetary predicament, why all three of the ‘do me firsts’ in the law have been jettisoned in favor of arbitrary, moving targets of conjecture that can do nothing but cover up for epic fail. Perhaps instead of making up elaborate schemes in order to obfuscate failure, it should at least take it upon itself to do the right thing by the workers of America because they have been getting the shaft from depressed output, or at least explain to congress that if it did inflation targeting correctly (which it did not and has not done – avoiding deflation is NOT price stability) that supply side inefficiencies cause an enormous amount of pain by eating out of the now very limited trough for growth that is allowed.