Live at Project Syndicate: Uncertainty at the Federal Reserve
Live at Project Syndicate: Uncertainty at the Federal Reserve: I find myself increasingly believing that the side of the scale that says the Federal Reserve is in the process of losing its credibility is the heavier. And this past week added another weight to that side of the scale. Over at Bloomberg View the very sharp Narayana Kocherlakota, former President of the Federal Reserve Bank of Minneapolis, writes:
: Ending an Unhealthy Obsession With the Fed: “The obsession with the Fed…
…Outsiders are seeking clues to the central bank’s broader goals…. The Fed’s stated aim… [is] inflation at 2 percent… but its actions send a different signal… [they] removed stimulus… even as inflation and inflation expectations have slipped downward… [their] economic projections… suggest that they don’t see getting inflation back up to target quickly as a primary determinant of monetary policy…. The Fed is balancing the pursuit of its inflation target with other objectives… [that they fear] low interest rates are causing risks and distortions… [that they] don’t want the unemployment rate to fall to an unsustainably low level… [that] raising rates at every meeting… could be too much of a shock…. It’s hard to know which objectives will dominate policy in the longer run. Hence, markets are parsing the June decision for whatever information they can get. This kind of uncertainty… is not healthy…
Narayana is correct. But I think he leaves unstated a good deal of the problem, for we face more than simply uncertainty about Federal Reserve policy objectives. Read MOAR at Project Syndicate: