Beholden to mainstream economic ideas, the new US Federal Reserve chair has committed himself, and his reputation, to a goal he cannot achieve. Reining in inflation requires not interest-rate adjustments but much larger strategic shifts that are not within the Fed’s power to influence.
TOWNSHEND, VERMONT—In his remarks to this year’s gathering of central bankers in Jackson Hole, Wyoming, US Federal Reserve Chair Kevin Warsh called for the Fed to “receive the full range of ideas” on monetary policy in order to “construct more reliable models.” Apparently, and to his credit, he recognizes that the current models, rooted in mainstream economics, are not very good. He also rightly acknowledged the Fed’s dual goals, set by law, of full employment and price stability, though he erred in describing the 2% inflation target as part of “our mandate.” (In fact, it is only an internal goal.)
TOWNSHEND, VERMONT—In his remarks to this year’s gathering of central bankers in Jackson Hole, Wyoming, US Federal Reserve Chair Kevin Warsh called for the Fed to “receive the full range of ideas” on monetary policy in order to “construct more reliable models.” Apparently, and to his credit, he recognizes that the current models, rooted in mainstream economics, are not very good. He also rightly acknowledged the Fed’s dual goals, set by law, of full employment and price stability, though he erred in describing the 2% inflation target as part of “our mandate.” (In fact, it is only an internal goal.)