The dirty secret of Keynesian central banking is that under current circumstances its interventions have almost no impact on its famous dual mandate—-stable prices and full employment on main street.
That’s because goods and services inflation is a melded consequence of global central banking. The capital, trade, financial and exchange rate movements which result from the tug-and-haul of worldwide central banking policies generate incessant shape-shifting impacts on the CPI; and the ebb and flow of these forces completely dwarfs FOMC actions in the New York money and bond markets.
In today’s world, there is no such thing as inflation in one country. In that regard, the traditional Fed tool of pegging the funds rate is especially obsolete, impotent and ritualistically mindless. After all, if the 2.00% inflation target is meant as a long haul objective, it was achieved long ago. The CPI index for January 2018 at 249.2 compared to a level of 169.3 back in January 2000, thereby representing exactly a 2.17% compound annual gain over the 18 year period.
So where’s the Eccles Building beef about missing its target from below—even if that wasn’t one of the more ludicrous notions of “failure” ever to arise from the central banking fraternity?
On the other hand, if 2.00% is meant as a short-run target, how much more evidence do we need? Since the Fed shifted to deep pegging at or near the zero bound in December 2008, there has been no inflation rate correlation with the funds rate whatsoever.
In the sections below we will resolve the inflation matter once and for all by demonstrating that the very idea of 2.00% inflation targeting (or any other target) is singularly stupid and destructive.