Wednesday, August 30, 2006

There can be only one. Mandate for the Fed that is.

Dallas Fed president Richard Fischer gave one of the best speeches on inflation I've read recently, and in it, reiterates a point I've been trying to make about the Fed:

"Inflation is a bit like having a measuring stick that grows or shrinks from one month to the next; the “doohickeys” and “doodads” that need to fit together, in this case, are prices for money or goods today and in the future. You get the picture. The consequences of a randomly varying dollar value would be severe. It doesn’t take a [Nobel laurate like] Finn Kydland to conclude that low and predictable inflation is preferable to high and variable inflation and that low and predictable inflation should be the goal of your central bank. "

Did you catch it? "Predictable inflation should be the goal of your central bank." Not avoiding recessions. Not bailing out the housing market. Not low unemployment. Not politics. Not the stock market. Not the banking industry. Predictable inflation. The Fed will only concern itself with other issues insofaras they further their goal of predictable inflation.

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