The Federal Reserve: Aiming High

‘Fed watchers’ are ‘quietly discussing’ a new four percent inflation goal — double the current target. Don’t say we didn’t warn you.

AP Photo/Jose Luis Magana
The Federal Reserve chairman, Jerome Powell, on March 8, 2023, at Capitol Hill. AP Photo/Jose Luis Magana

“Aim high,” is the advice for the Federal Reserve from the New York Times’ economic columnist, Jeff Sommer. Unfortunately, he’s talking about inflation. It “needs to come down,” he says, but not “if it means throwing a lot of people out of work later this year.” He proposes “re-examining” the Fed’s current two percent inflation goal and settling for a rate of price increases that’s twice as high: four percent.

Don’t say we didn’t warn you. Back in January in the fight against inflation, we chronicled the debate within the Fed “over whether to move the goal posts.” There was talk of settling for three percent, or even four percent, inflation to create what Morgan Stanley’s James Gorman calls a “happy land.” Now Mr. Sommer says a higher inflation target is something “Fed watchers” are “quietly discussing because it could become crucial soon.”

“Quietly” is an apt descriptor for these discussions of what is, in inflation, the silent thief. We honest money advocates see even a two percent inflation as a theft and a symptom of the era of fiat money. In the heyday of a sound dollar, with the greenback convertible into gold or silver specie, America held the average rate of annual inflation to 0.1 percent, economist Michael Bordo has noted. That puts even two percent inflation to shame.

Yet Mr. Sommer calls two percent inflation “the sweet spot.” It’s “low enough for consumer comfort but relaxed enough for the economy to flourish,” he reports, “according to Fed doctrine settled years ago.” Ah, well, it was settled years ago, you say?  With such casual nonchalance, how could any reasonable person disagree? In this way the lay reader is lulled into complacence over a rate of inflation that would wipe out his life savings in 40 years.

Before Nixon severed the last tie between the dollar and gold, the Congress took a more conscientious approach to inflation. When, in 1957, inflation fetched up at an average of 3.3 percent, senators were outraged. Harry Byrd of Virginia decried the “inflation which has started again with its ominous threat to fiscal solvency, sound money and individual welfare.” Hearings were held to investigate.

At the time, a Senator from Utah, Wallace Bennett, groused that “inflation seems to be becoming acceptable.” He warned against the temptation to use gradual price increases, as some academics advocated, to suggest an appearance of prosperity. “When government creates money faster than its citizens create value,” Bennett bruited, “it does not create wealth, it only creates inflation, which is the illusion of wealth.”

Tell that to Mr. Sommer, who frets that the two percent inflation target is “arbitrary” and doesn’t “allow sufficient flexibility in decision making.” Reprising the “transitory” message of 2021, Mr. Sommer suggests inflation “may wane in a sustained way in the next few months.” Yet “if the Fed tightens further in an attempt to drive inflation” back down to two percent, he says, “the cost in lost jobs and economic growth could be cruel and excessive.”

This kind of talk suggests that Mr. Sommer is parroting the Fed’s self-serving deceptions over high salaries and employment causing today’s inflation. It overlooks the role played by the Fed itself, with its monetary experiments — like quantitative easing and artificially low interest rates — in sparking the runaway price spiral. It also suggests an adherence to the long-outmoded Phillips Curve that tries to link prices to wages.

Were the Fed and the Democrats serious about fighting inflation while also saving jobs, they would back supply-side measures like less regulation, lower taxes, and spending cuts. Instead Mr. Biden et al propose precisely the opposite. The Fed chairman, Jerome Powell, blithely agrees, contending “fiscal impulse is actually not what’s driving inflation right now.” He’s aiming high on spending, taxes, and inflation.


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