4 ms·
The Fed does have a specific requirement. As part of the 1977 revision > "so as to promote effectively the goals of maximum employment, stable prices and moder
by djloche 13y ago
The Fed does have a specific requirement. As part of the 1977 revision
> "so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates."
Targeting 2% inflation means they're not even trying to promote stable prices. Unfortunately, there is no punishment for not keeping to the mandate.
- betterunix 13y agoFor what it's worth, here is the Bank of Canada's explanation for why they target a 2% inflation rate as part of a broader goal of promoting price stability: http://www.bankofcanada.ca/wp-content/uploads/2010/11/why_canada_inflation_target.pdf http://www.bankofcanada.ca/wp-content/uploads/2010/11/why_ca...
- SkyMarshal 13y agoKeep in mind the mandate is price stability, not interest rate stability. And anyway, targeting a static, transparent, openly published interest rate is very stable, at least when they are actually able to do it for extended periods. It's very predictable, which businesses need to plan and forecast future hiring and investment. Volker targeting [whatever it takes to kill inflation, eg 20%+] and Bernanke targeting [whatever it takes to prevent a Depression, eg 0%] maybe not so much, but at those times their mandate was even moreso price and economic stability, not interest rate stabilty. The fact that 2% interest rates cause currency devaluation over time doesn't make it unstable, it's still quite predictable and hence stable. It's high-variance money and assets, like cryptocurrencies among other things, that are unstable (at least right now in their infancy, I'm sure that will be different 10-20yrs from now).
- djloche 13y agoYes, price stability is exactly what I wrote. Interest rates are not inflation. 2% price inflation can in no way be interpreted to mean stable prices.