The Fed’s economists are always coming up with deranged new ideas and when they fail to reach their goals the first time, they double down. In the recent decade they picked the completely arbitrary inflation growth rate of 2% (as calculated by the misleading PCE) and stated that for the economy to be on a strong trajectory, 2% inflation was a necessity. And of course, they directed all their stimulus toward Wall Street and capital markets (including housing) which has seen substantial gains since the crisis, but neither are calculated in the PCE.
At any rate, the Fed can point to the failure to hit 2% as an excuse why the economy isn’t exactly strong 9 years after the crisis. The silly goal of trying to cause a rise in consumer prices will now be addressed with new “solutions.” According to their models they haven’t consistently hit 2%, though main street grocery shoppers dissent from the academic models.
At any rate, the Fed is determined to succeed. And so, San Francisco Fed President John Williams presented the idea of “flexible price-level targeting.” This new excuse for monetary expansion will allegedly allow the Fed to adjust interest rates and monetary base growth in accordance with what is needed to hit a certain price level. In other words, the Fed wants the ability to overshoot the 2% goal as necessary to make up for lost time or to more effectively deal with years of “too low inflation.”
The whole idea of trying hard and failing to hit their inflation goals is a massive underlying theme that continues to justify more monetary intervention. The Fed could hit 2% or more anytime it wanted to. For one thing, they could stop paying interest on excess reserves and therefore remove the incentive to keep money stocked at the Fed. This whole dramatic presentation is just an excuse to keep feeding cheap debt into the capital markets and the US Treasury.
What the United States economy needs is not a Fed that is more successful at hitting its currency devaluation schemes. We need the opposite: we need the Fed to walk away from the business of managing the economy so that prices can adjust, bad debts can be liquidated, and the economy can accumulate a healthy level of savings.
