In searching around for an article TravisV asked me to find, I started down the road on the sort of interesting topic of what was being said in the debate regarding inflation targeting just prior to 2008 after having dug up some articles from the Finanical Times, WSJ, NY Times, etc… about drama going on in the Fed and between the Fed and Congress about an explicit target.
In particular, in an article that appeared in the WSJ’s online version on February 2, 2007, it ventures to describe some of the drawbacks of adopting an inflation target, and among them is this rather glib gem:
One way to minimize both problems would be for the FOMC, rather than announcing a target, to lengthen its current semiannual forecast — a range of forecasts by individual FOMC members — to three or four years from the current two. Because that would ordinarily be long enough for the Fed’s interest-rate actions to achieve any inflation rate the central bank desired, the fourth-year forecast could be construed as a target without being called one.
A shortcoming of this approach is that if a big shock, such as a jump in energy prices, drove inflation up sharply, it could take more than four years to get it back to the target, unless the Fed was willing to drive unemployment sharply higher. Another is that the forecast would include unemployment, and Congress might see that as an implicit target for which the Fed should be held accountable.
And this one:
Among the drawbacks to an explicit target is potential resistance on Capitol Hill, and internal discord over what, if any, number should be picked. That has prompted Fed officials to take a look at an implicit target, which would communicate the Fed’s preferred inflation rate without having the force of an official goal.
Fed officials say one form of implicit targeting would be to extend the horizon of the Fed’s economic forecasts beyond the current two years, with the inflation forecast for the last year of the period representing the Fed’s implicit target. Another would be to poll all 19 FOMC members on their personal definition of price stability and publish the resulting range, rather than forcing them to agree on a single number or range.
But officials have significant misgivings about both approaches, primarily because they sacrifice clarity and accountability, the very benefits that targets are meant to achieve.
No clarity or accountability while driving unemployment sharply higher to meet an arbitrary target.
Yeah. That sounds like a great plan. Easy to sell to the public. Easy for the public to understand. Sure. We’ll just destroy the livelihoods of millions of random people for the sake of an arbitrary target intended to fix something that wasn’t broken. It’s really too bad nobody told the public this when unemployment was above 10% – that it was for our own good.
The public benefit from all of this(??):
Proponents of this approach say that adopting an explicit inflation target for the U.S. would reassure Americans, discouraging self-fulfilling inflationary expectations if, for example, the economy overheated or energy prices jumped. It also would give financial markets a better indication of the Fed’s likely response to shifting economic conditions.
Oh-my-God – AND the WSJ knew about this well in advance while publishing article after article basically calling the unemployed deadbeats after the crash. Oh-my-God.
And that is supposed to be consistent with the mandates of maximum employment and stable prices?? My ass! That is nothing but pure, unadulterated sadism.