{"id":33978,"date":"2018-05-04T09:17:41","date_gmt":"2018-05-04T14:17:41","guid":{"rendered":"http:\/\/olduvai.ca\/?p=33978"},"modified":"2018-05-04T09:17:41","modified_gmt":"2018-05-04T14:17:41","slug":"the-fed-should-be-careful-what-it-wishes-for-2","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=33978","title":{"rendered":"The Fed Should Be Careful What It Wishes For"},"content":{"rendered":"
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\"<\/picture>SAUL LOEB\/AFP\/Getty Images<\/span><\/figure>\n<\/div>\n
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The Fed Should Be Careful What It Wishes For<\/a><\/h3>\n
Major central banks\u2019 fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next \u2013 the battle against too-high inflation.<\/div>\n<\/div>\n
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CAMBRIDGE \u2013 Empirical relationships in economics are sufficiently fragile that there is even a \u201claw\u201d about their failure. As British economist Charles Goodhart explained<\/a> in the 1980s, \u201cany observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.\u201d Central banks in advanced economies have recently been providing a few more case studies confirming Goodhart\u2019s Law, as they struggle to fulfill their promises to raise inflation to the stable plateau of their numerical targets.<\/p>\n

Major central banks\u2019 fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next \u2013 the battle against too-high inflation.<\/p>\n

Consider the United States Federal Reserve, which at the beginning of 2012 quantified its Congressional mandate<\/a> of \u201cpromoting maximum employment, stable prices, and moderate long-term interest rates.\u201d These goals would be best achieved by keeping inflation, measured by the Fed\u2019s preferred personal consumption price index, at 2% in the long run. Since then, the four-quarter growth in that index has been below this target in every quarter but one, as Fed forecasts of inflation consistently fell short of the mark. Goodhart\u2019s Law still has teeth.<\/p>\n

The Fed\u2019s solution to this failure, like that of other central banks, has been to talk more about the subject. The minutes of the January meeting<\/a> of the Federal Open Market Committee (FOMC) reveal an extensive discussion among policymakers about how to determine US inflation.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

SAUL LOEB\/AFP\/Getty Images The Fed Should Be Careful What It Wishes For Major central banks\u2019 fixation on inflation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in fighting the last war, they will be poorly prepared for the next \u2013 the battle against too-high inflation. CAMBRIDGE […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[18342,124,303,426,8402,3650,18343],"class_list":["post-33978","post","type-post","status-publish","format-standard","hentry","category-economics","tag-carmen-m-reinhart","tag-central-banks","tag-fed","tag-inflation","tag-project-syndicate","tag-us-federal-reserve","tag-vincent-reinhart"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33978","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33978"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33978\/revisions"}],"predecessor-version":[{"id":33979,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/33978\/revisions\/33979"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33978"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33978"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33978"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}