The first thing that strikes us about the Federal Reserve’s new “Statement on Longer-Run Goals and Monetary Policy Strategy” is that the vote to approve it in the Open Market Committee was unanimous. The country may be down with its worst dose of divisiveness since practically the Civil War, and on almost every issue imaginable. Yet on the contentious issue of monetary strategy, the Fed turns out to be unanimous.
Which put us in mind of the Great Sanhedrin. That was the body of 71 sages of Jewish law. It sat at Jerusalem in the time of the Temple. It is recorded that the Great Sanhedrin refused to hand down a capital sentence if the rabbis were unanimous. Basically, it seems one thing the sages feared was the possibility that unanimity among the rabbis might indicate that the defense had been inadequate.
We have the same sense in respect of the Federal Open Market Committee’s endorsement of the Fed’s new monetary policy strategy. One feature of the new strategy, after all, is the Federal Reserve will go into less of an alert than under current policy if inflation gets above two percent. Is it ideal that this change in strategy was approved unanimously? Or is it possible that the idea of stable prices was inadequately defended?
It’s wonderful that the Fed is doing a review of its strategy. Particularly in these times where budget deficits might run to, say, a trillion dollars — a month. Wouldn’t it have been better, though, had at least one dissent been heard on the Open Market Committee? Were there at least one dissenter, Americans could be more confident that the question of honest money was at least raised.
Which brings us to Judy Shelton. The economist’s nomination to a governorship of the Fed could be brought to the floor of the Senate as early as next month. She was okayed in July by the Banking Committee on a party line vote, with some of her critics arguing that her views are out of the mainstream — a circumstance that she forthrightly acknowledged to the solons in the course of her hearing.
We don’t know what position Ms. Shelton might have taken had she been on the Fed’s board when the new statement on goals and strategy was up for discussion. We do know that the Wall Street Journal, on whose op-ed page she published in recent years a brilliant series of pieces on the role of gold in our monetary system, took a sardonic view of the Fed’s new statement. The editorial ran under the headline “Low Rates Forever!”
“The Federal Reserve Takes a Leap Into the Monetary Unknown,” the sub-headline said. The Journal welcomes the Fed seeming to abandon the Phillips Curve, which illustrates the notion that full employment begets inflation. (The Trump economy helps put paid to that idea.) The Journal worries, though, that the Fed seems to be backing away from viewing its inflation target — 2% — as a “ceiling.”
“No longer,” the Journal says. “The Fed now will aim to achieve ‘average’ inflation of 2%, meaning it will tolerate periods of faster price rises to compensate for periods when inflation falls short.” It says that Chairman Powell believes such a symmetrical target is necessary to “anchor” inflation expectations. In Sun-speak, that means the dollar will remain, by fiat, a piece of irredeemable, electronic paper ticket money of no defined value.
We did this afternoon run the Fed’s statement of yesterday through our newly refurbished Acme brand “Automated Steam-Powered Gold-Mention Ferreter.” It failed to ferret a single mention of the word gold. Nor could the word “gold” be found in the PDF version of the central bank’s report on the program known as “Fed Listens.” That’s where the Fed, in 15 meetings, sounded out the public on its strategy.
The “Fed Listens” report runs to 131 pages. Yet our trusty Acme brand “Gold-Mention Ferreter” failed to find even one occurrence of the word gold. What that says to us is that the Fed needs Ms. Shelton. She’s highly collegial, unlikely to turn over the tables. Our guess, though, is that with her as one of the governors, the Fed would be less likely to make the kind of blunder that so worried the Great Sanhedrin.