Inflation is the main subject of the ongoing Federal Reserve conference in Jackson Hole. That’s a great topic because confidence in the stability of prices and the dollar is one of the most important ingredients for fast economic growth. It ranks with such growth luminaries as property rights, low tax rates on a broad base, a liberal international trading environment, market pricing rather than government-set prices, effective regulation, and government spending restraint. Progress on any of these adds to growth, jobs, and median incomes, but on most of the policies, including the need for a strong and stable dollar, the U.S. has been back-sliding.

The Fed’s inflation conference probably won’t talk much about the connection between the dollar and price stability. The establishment view is that inflation is linked to unemployment and the Fed funds rate rather than the wide swings in the value of the dollar. The staples of discourse at these inflation conferences are the disproven theories that more jobs cause higher prices (the Phillips curve) and low interest rates cause more growth and inflation. This misses the growth point entirely — that confidence in the long-term stability of the dollar, on both the strong side and the weak side, is lacking, resulting in global weakness in investment, productivity and jobs.

Putting aside the question of whether the Fed’s 2% inflation goal is an important or appropriate one, one can see that the challenge to the Fed is that its chosen tools aren’t working to meet its chosen goals. This creates two uncertainties — about the Fed’s effectiveness and its possible responses to low inflation. The Fed has been saying for years that its policies will push inflation up to its 2% target, but yestertoday’s Commerce Department data again moved in the “wrong” direction. The core consumer inflation rate slowed to 0.1% in July and 1.2% over the last year at a time when the Fed has desperately been claiming that its policies would push inflation up.

Low inflation is understandable given the strengthening dollar, but neither the Fed nor its partner at Treasury admits that there’s much linkage. The risk is that the Fed might, out of pique or confusion, simply maintain or even deepen its current policies of near zero rates and a giant maturity mismatch (caused by the Fed borrowing short-term from banks to finance a staggeringly large bond portfolio, putting taxpayers at risk.)

Rather than rethink its policies, the Fed has simply been extending the same policies for years, hoping they would suddenly start working. In recent weeks, Fed officials have been engaged in a raucous press debate over whether the Fed should raise interest rates and how that might affect inflation and growth. Policy-making by megaphone is part of the Fed’s experiment with an open communication policy, but the polarized commentary from inside the Fed has had the negative effect of discouraging investment and deeply unsettling global financial markets.

In recent commentary, the president of the Minneapolis Fed, Narayana Kocherlakota, said a rate hike would be a mistake because it might be too early. Secretary Summers, the former treasury secretary, escalated the rhetoric, saying a rate hike might have been possible earlier but would be “dangerous” now because the economy has sunk into a secular stagnation. The zero-rate proponents tend to ignore the possibility that the Fed’s policies may be one of the major causes of slow growth; and assume without proof that a zero rate is better for growth than a slightly higher rate. They sometimes acknowledge the economy’s poor performance but, rather than considering a new Fed policy, often use the opportunity to propose increases in government spending, especially infrastructure spending.

On the other side, the president of the Kansas City Fed, Esther George, the host of the Jackson Hole conference, yesterday convincingly expressed her long-standing view that a rate hike would make sense. The president of the Richmond Fed, Jeffrey Lacker, is expected to give his reasons for supporting a rate hike in a September 4 speech.

The markets worry is that, if these most knowledgeable officials are having to fight this much over a mere 0.25% change in interest rates, maybe the world financial system is brittle. Or maybe policy makers just don’t know which tools will work and why. Either way, the Fed’s indecision doesn’t build confidence in long-term price stability.

Enter Vice Chairman Stanley Fischer this afternoon at Jackson Hole. He’s slated to give the conference’s concluding remarks on inflation. Mr. Fischer’s views will be widely followed in the financial community both because of his formal role as Fed Vice Chairman and his history of teaching, and even guiding the doctoral dissertations, of many of the world’s leading policymakers.

The ideal would be for Mr. Fischer to commit that the Fed’s mid-September meeting will give full consideration to the growth benefits of moving off the zero bound. The Fed has never been convincing on how near zero rates provide financial accommodation. The evidence from the economy suggests that they don’t. Even if Mr. Fischer doesn’t take a stand, it would help if he addressed the core of the debate — the Fed can’t just keep blindly assuming that lower interest rates are better for growth and higher rates are a “tightening”. The evidence shows the opposite.

Under current circumstances, near zero rates have resulted in disappointing economic outcomes. Moving interest rates above the zero bound should have numerous growth benefits: improve the functioning of short-term credit markets; move the financial system a small step back toward a price-based allocation of credit from the current non-market extreme; reduce the current uncertainty about whether a rate hike will collapse the international financial system; and encourage investment decisions, which are now held in abeyance waiting to see the results of a rate hike.

The Fed’s plan has been to hold off on rate hikes until the economy improves, but that day never seems to come. The bad economic results are clear and the strategy has become a zero-rate trap. The solution is to give consideration to the growth benefits from a rate hike, leading to a small increase in September. Finally getting over that blockage would open the discussion to a much more productive debate on the critical need for a “strong and stable” dollar policy as a means to price stability, low inflation, and faster growth.