Scott Sumner has a great post on Fed accountability (the second of two, actually) over on Econlog. He points out that the Fed has a long way to go to even get to transparency, let alone accountability.
So let’s say the Fed doesn’t want to be told what to do. And they don’t even want to be told to come up with their own rigid policy rule. It still remains true that the Fed must in some sense want to do SOMETHING. It must have some sort of policy objectives. And that means it ought to be possible to ascertain how effectively they have achieved those objectives, at least in a qualitative sense.
As the Fed announced in January of 2012, 2% inflation is the objective. The problem with it is that over time we’ve been told a number of things about the target that are inconsistent, like it’s the PCE headline index. Then we’ve been told it’s the core index, and it’s a long run objective, and it’s a medium term objective… While any number of combinations of those elements would produce different results. And so there is little to be debated without having to assemble a strawman out of which to beat the stuffing.
Janet Yellen held her press conference after the FOMC meeting this month and told us that 2% inflation is a medium term objective. But it doesn’t really mean anything to anyone. Every statement has said this since Jan 2012 and there isn’t any movement toward the target. She can say it, and it can be contained in only so many statements month after month with it constantly being missed before we all start getting the idea that it really means zilch, zero, nada, nothing.
Yellen said that the decline in oil is a major driver of below target inflation. Even if it is partially true, what excuse was there before the crash in oil prices?
Breaking it down into simplistic terms, nobody knows where we are in relation to the target, though I have a suspicion we’re still far behind a 2% trend from Jan 2012. It would be the appropriate thing to do to not react to supply shocks, unless there are other non-transitory deflationary pressures playing into it. And there is plenty of evidence to suggest that is exactly the case. The echo from the monetary big bang in 2008-11 didn’t just vanish overnight in declining oil prices.
Even worse still, missing the target while insisting it’s still the target means something as time goes on regardless of whether the objective shifts from longer to shorter – lack of more means we get less of everything. We are never going to get the growth we’ve lost due to this horrendous asymmetry – ever. It’s gone. Good-bye. And it isn’t chump change.
But she and her colleagues must think we’re nothing but chumps who won’t miss what we’ll never have because no matter the circumstance they keep making illogical statements about the Fed’s goals, blaming their lack of progress on the target on oil when that is just a recent thing. Maybe she doesn’t think we’re smart enough to figure out that inflation might be a bad target because it is full of nothing but supply-side noise – or that this is all just BS to baffle the peasants because nobody over there has the grit to do the right thing to serve the general welfare. Doing nothing is just so much easier regardless of whether it rips off the future, and it doesn’t seem to make anyone angry except for that loudmouth dajeeps.
Please tell me that I can’t be among just a handful of people who see the desolation of the future that these people have wrought. We all should be pretty darned upset about this; if not for ourselves, for our kids.