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The Fed’s Inflation Goal Is Completely Arbitrary

1 points by Amorymeltzer 4y ago

jfengel 4y ago
It isn't completely arbitrary. There's good reason to think that -2%, 0%, and 10,000% are all bad numbers. The fact that there's a target number at all is an artifact of having to actually do work. They don't have the luxury of doing experiments to find out the perfect way of managing the economy. Instead they have a model with decent theoretical grounding and decent empirical confirmation. So it's weird to call that "completely arbitrary". Maybe 4% would be better. Maybe 1% would be. It's really impossible to know, since it's fundamentally a matter of psychology. You try to nudge people to want to spend enough money to push the economy forward, but not so much that they can't save for retirement. The Fed's real problem is that it doesn't know how to measure inflation. They kept interest rates too low for too long, which inflated a lot of things other than consumer inflation... until consumer inflation finally caught up with it. Presumably they're working on better ways to account for that, which is more useful than quibbling about the target on a model they already know is insufficient.
fullshark 4y ago
I'm expecting to read a lot of analysis like this, as the full court PR press comes out to try and get the target to move to 3%.
- newaccount2023 4y ago
  exactly, particularly with an election coming up all of the cutouts will be activated to gin up an argument to blow one, final, we-really-mean-it last bubble to get the administration re-elected this is where we are as a nation SV is now part of the problem, "startups" running cash-negative for years need to find a policy to make a Series J round seem not-insane its not just the injustice of punishing young people with brutal future inflation to reward the rich...we run the real risk of missing out on real innovation markets in the future because we truly believe the best minds in the country should get ten years to work on a Flexport-For-Pets-Written-In-Elixir ....the US cannot afford to keep locking the nation's talent into these gibberish facade companies

1 points by Amorymeltzer 4y ago

It isn't completely arbitrary. There's good reason to think that -2%, 0%, and 10,000% are all bad numbers. The fact that there's a target number at all is an artifact of having to actually do work. They don't have the luxury of doing experiments to find out the perfect way of managing the economy. Instead they have a model with decent theoretical grounding and decent empirical confirmation. So it's weird to call that "completely arbitrary". Maybe 4% would be better. Maybe 1% would be. It's really impossible to know, since it's fundamentally a matter of psychology. You try to nudge people to want to spend enough money to push the economy forward, but not so much that they can't save for retirement. The Fed's real problem is that it doesn't know how to measure inflation. They kept interest rates too low for too long, which inflated a lot of things other than consumer inflation... until consumer inflation finally caught up with it. Presumably they're working on better ways to account for that, which is more useful than quibbling about the target on a model they already know is insufficient.

fullshark 4y ago

I'm expecting to read a lot of analysis like this, as the full court PR press comes out to try and get the target to move to 3%.

newaccount2023 4y ago
exactly, particularly with an election coming up all of the cutouts will be activated to gin up an argument to blow one, final, we-really-mean-it last bubble to get the administration re-elected this is where we are as a nation SV is now part of the problem, "startups" running cash-negative for years need to find a policy to make a Series J round seem not-insane its not just the injustice of punishing young people with brutal future inflation to reward the rich...we run the real risk of missing out on real innovation markets in the future because we truly believe the best minds in the country should get ten years to work on a Flexport-For-Pets-Written-In-Elixir ....the US cannot afford to keep locking the nation's talent into these gibberish facade companies