Former Fed Governor Robert Heller wrote an important WSJ letter “The Fed Needs to Change but Stay Independent” (see below).
In addition to Fed independence, Bob notes that “Where the Federal Open Market Committee has fallen short in recent years is by not focusing on the monetary and credit aggregates.” Our research and provision of monetary aggregates for over a decade supports his view (see “A Story of Money, Inflation, and the CFS” below).
His piece continues “one will look in vain to find the word ‘money’ in any of the decisions of the FOMC during the past three years.” Indeed, the Fed’s explanation of the failure of the SVB crisis neglected to utter the word “monetary” once in the combined 171 pages in the Barr report and the Fed’s IG study.
In the early stages of Covid, Charles Goodhart wrote a CFS paper (see “After Coronavirus: Deflation or Inflation?” below). Here, he contrasted two strongly held, but competing views regarding the future path of inflation following recovery.
- “A mainstream position suggested that inflationary pressures would remain muted for the foreseeable future.”
- “In contrast, a contrary view believed that expansionary monetary and fiscal policies would generate inflation.”
Charles concluded that “apart from the important practical implications of finding out which of these positions is more nearly correct, it will affect macroeconomic theory and teaching, perhaps forever.”
We now have sufficient evidence to show why money and credit needs to be incorporated into the Fed’s policy calculus.
The Fed Needs to Change but Stay Independent
https://www.wsj.com/articles/federal-reserve-fed-monetary-independence-trump-cc314765?mod=letterstoeditor_article_pos8
A Story of Money, Inflation, and the CFS
https://www.centerforfinancialstability.org/research/Money_Story_060623.pdf
After Coronavirus: Deflation or Inflation?
https://www.centerforfinancialstability.org/research/Goodhart_Deflation_Inflation_081420.pdf