Richard Fisher, the president of the Dallas Federal Reserve, spends a bunch of time trying to argue that further monetary easing won’t boost growth, but that ultimately turns out not to be his real reason:
Calling price stability the Fed’s “ultimate goal,” he said the U.S. central bank will not tolerate either inflation or deflation.
“The Federal Reserve is absolutely committed to its goal of achieving price stability,” he said. “This entails keeping inflation extremely low and stable.”
As Scott Sumner emphasizes this is the opportunistic disinflation agenda the view that the Federal Reserve should deliberately prolong economic downturns in order to ratchet the inflation rate down to ever-lower levels. It’s a crazy idea. Inflation can, of course, get too higher. But after Paul Volcker beat inflation we had about a 4 percent inflation rate and things were fine. Then we progressively disinflated further and got down to about a two percent inflation rate. That was also fine. But now we’re mired in a cataclysmic recession, which is not fine. And instead of ending it, the “hawks” on the Fed are prolonging it in effort to get us down to near-zero inflation. But why?