3 ms·

I think it's interesting that this definition of mandate came in 77 immediately ahead of Volker's appointment and he essentially ignored it. The fed have alway

by mattrp 7y ago

I think it's interesting that this definition of mandate came in 77 immediately ahead of Volker's appointment and he essentially ignored it. The fed have always had a bit of heart burn over whether their job includes employment. Even today, there is not an employment target, there is only an inflation target and its precisely because no one really knows or agrees on what the employment target should be. I think when greenspan acted to raise rates, like Volker, he was predominantly concerned about inflation rather than jobs even though raising rates did cool the economy and reduce jobs. And yet, neither man or policy was punished for essentially ignoring the employment component. Now in more recent years, Yellen has been out on the forefront of pushing the limits of what full employment means but her successor seems to be more interested in getting the fed back focused onto the issue of monetary policy. Hopefully this clarifies where I'm coming from...do you substantially disagree with this assessment or is it just the fact that I confused the issue by phrasing my argument in a way that seemingly conflicts with the statute?

dragonwriter 7y ago
> I think it's interesting that this definition of mandate came in 77 immediately ahead of Volker's appointment and he essentially ignored it The Fed chair doesn't unilaterally set policy, and the Fed Board of Governors in Volker’s term didn't ignore the other parts of the mandate, it just saw inflation as the biggest risk, for reasons which are pretty easy to understand in the historical context, even if they were wrong in hindsight. > Even today, there is not an employment target, there is only an inflation target and its precisely because no one really knows or agrees on what the employment target should be That's not entirely true, it's more that it's because they have a very firm idea of what the employment target should be, but it's not a fixed employment level but the (dynamically shifting, in terms of employment measures) point at which further monetary stimulus has little further employment impact but great inflationary impact. > I think when greenspan acted to raise rates, like Volker, he was predominantly concerned about inflation rather than jobs Of course; the Board of Governors raises rates when inflation is the greatest concern, it lowers them when jobs are the greatest concern. They’ll admit that quite openly, you haven't made some stunning discovery. The understanding (somewhat simplified) is that there is a range (which moves dynamically based on other factors in the economy) in which easier money produces more employment with comparatively little inflationary effect, and a range (in interest rate terms, a lower level than the preceding range) in which it produces inflation with little jobs effect, as “full employment” has been reached (with the reverse effects in each range for tighter money). The Fed, again somewhat simplified, largely acts on interest rates based on which range it feels the current situation is in, aiming for the moderate inflation/“full employment” boundary.

by mattrp 7y ago

dragonwriter 7y ago

> I think it's interesting that this definition of mandate came in 77 immediately ahead of Volker's appointment and he essentially ignored it The Fed chair doesn't unilaterally set policy, and the Fed Board of Governors in Volker’s term didn't ignore the other parts of the mandate, it just saw inflation as the biggest risk, for reasons which are pretty easy to understand in the historical context, even if they were wrong in hindsight. > Even today, there is not an employment target, there is only an inflation target and its precisely because no one really knows or agrees on what the employment target should be That's not entirely true, it's more that it's because they have a very firm idea of what the employment target should be, but it's not a fixed employment level but the (dynamically shifting, in terms of employment measures) point at which further monetary stimulus has little further employment impact but great inflationary impact. > I think when greenspan acted to raise rates, like Volker, he was predominantly concerned about inflation rather than jobs Of course; the Board of Governors raises rates when inflation is the greatest concern, it lowers them when jobs are the greatest concern. They’ll admit that quite openly, you haven't made some stunning discovery. The understanding (somewhat simplified) is that there is a range (which moves dynamically based on other factors in the economy) in which easier money produces more employment with comparatively little inflationary effect, and a range (in interest rate terms, a lower level than the preceding range) in which it produces inflation with little jobs effect, as “full employment” has been reached (with the reverse effects in each range for tighter money). The Fed, again somewhat simplified, largely acts on interest rates based on which range it feels the current situation is in, aiming for the moderate inflation/“full employment” boundary.