I saw this article in a November 2005 issue of Businessweek about Ben Bernanke and inflation targeting, and figured out that Scott Sumner has been delusional about whether the terrible policy from the FED is coming from Ben Bernanke. Bernanke doesn’t agree with him.
Greenspan thinks target rates would hamper Fed flexibility
The biggest policy difference between Alan Greenspan and Ben S. Bernanke is over something known as inflation targeting. Greenspan is against it, Bernanke is for it. Here’s a guide to understanding the debate…
Why does Bernanke favor inflation targeting?
He thinks that a more “transparent” Federal Reserve policy would promote stable, noninflationary economic growth by giving businesses and consumers more certainty about the future course of interest rates and inflation.
Why is Greenspan against it?
He thinks the Fed can control inflation without announcing a target rate. Plus, he worries that an announced rate would make it harder to respond flexibly and intuitively to a financial crisis or changing economic conditions. Greenspan recognized from a variety of subtle indicators in 1997 that rapid productivity growth was likely to curb inflation — even though most conventional forecasts predicted accelerating inflation. He persuaded fellow Fed policymakers to not raise interest rates, allowing the economy to flourish.
Does Bernanke admit that inflation targeting would decrease the Fed’s flexibility?
No. He says that in a crisis the Fed would do whatever it takes to stabilize the economy. Frederic Mishkin, a Columbia University economist and longtime Bernanke collaborator, says that establishing credibility with the financial markets as an inflation hawk gives an inflation-targeting central bank more, not less, flexibility to tackle recessions.
And of course, IT has done just the opposite of “promote stable, noninflationary economic growth by giving businesses and consumers more certainty about the future course of interest rates and inflation.” By that gauge alone, it is a complete and utter failure. It’s time for Mr. Bernanke to admit that IT is a failure and right the ship ASAP.