Planning to Fail at the Federal Reserve


An excellent point from Karl Smith who notes that there’s something a bit loopy about the Fed continuing to project below-target inflation for years when their job is to hit the inflation targets:


These are forecasts are generated assuming optimal monetary policy. So the Fed is saying even if it acts in the best possible way it still expects to miss it targets well into 2012.

That’s ignoring the fact that its 2010 – to late to influence – inflation numbers still look a bit rosy to me.

The Fed is literally planning to fail. This is not good. Not good at all.

Either it’s planning to fail or it’s decided to unilaterally change its mission. Which may be the case, since instead of taking responsibility for setting an inflation target (“around two percent”), Congress decided to give the Fed a hazy dual mandate. Then on top of that, members of congress seem to have little interest in asking the Fed what it is it’s doing, money-wise. But if the idea is really that the Fed’s governors are still targeting a 2 percent inflation rate and can’t think of any ways to generate more inflation they ought to resign so we can bring some guys on board from Zimbabwe. Talking about the ins-and-outs of helicopter drops can get wonky and fun, but at the end of the day it ought to be the easiest thing in the world for a central banker armed with a bit of determination to generate inflation.