Friday, November 14, 2014

Paul Volcker Slams Current Fed 2% Price Inflation Target

Former Fed chairman Paul Volcker, 87, spoke on current monetary policy while participating at a conference held at the Federal Reserve Bank of Philadelphia on Thursday.

WSJ reports, Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, “Do we want prices to double every generation?”

I am with Volcker here. This 2% inflation target seemingly came out of nowhere during the Ben Bernanke era and this goofy target has been also been a part of policy by current Fed chair Janet Yellen. It is not clear what Volcker means completely by "dollar stability," and I might have some qualms with him on that point (SEE: Murray Rothbard and the Deflation Bogey), but he is damn correct in calling out the current Fed target inflation. There is simply no sound theoretical justification for any central bank created inflation in an economy.

Volcker also slammed the Fed's current forecasts:
Mr. Volcker also said the Fed’s decision to provide long-term forecasts for key economic variables is simply folly.
“The fate of the Federal Reserve can’t depend on the accuracy of the forecasts it makes two years ahead,” he said. Offering up forecasts with greater frequency and details–the Fed now does this on a quarterly basis–simply demonstrates to the public “more frequently the forecasts aren’t that accurate.”
Compared to G. William Miller, whom Volcker succeeded as Fed chairman. he looked like a rock of stability. The Bernanke-Yellen period is once again making Volcker look as solid as a rock.

That said, I'd take Joe Salerno over Volcker any day as a current Fed chair. Now, that would be something.

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