Friday, January 29, 2016

VIDEO San Francisco Fed President Explains Why the Fed Has a 2% Price Inflation Target

By Robert Wenzel

Following a forum discussion by San Francisco Federal Reserve president John Williams, along with Stanford economist John Taylor, at the Nikko Hotel in San Francisco, as part of the regular Commonwealth Club of San Francisco forums, a separate press conference was held for the financial media with Williams.

I was able to ask Williams about a comment that Steve Forbes made during an interview with Money Metals Exchange.

The interview has not yet been published but a copy was provided to me and I received permission from Money Metals to ask Williams about this Forbes comment:
One other example on that is Janet Yellen, the head of the Federal Reserve, says that we should have two percent inflation, which in her mind is seeing the prices rising two percent a year. If you take a typical American family making fifty thousand bucks a year, that means their costs would go up a thousand dollars a year, two percent of fifty thousand. Who gave her the authority to raise the cost of living, which is an effective tax, a thousand dollars on a typical American family? Yet Congress, they just nod their heads. It's a travesty.
The response by Williams is below. Please note, the nature of these type press conferences is such that you can't really debate. It's ask your question then the next questioner  is up. So I pushed it by even asking Williams about 3% inflation, there was no way I could debate him on the entire concept that inflation somehow magically boosts productivity,

But, anyway, I believe Williams' answer provides a general reflection on how Fed members now think about inflation and their justification for creating price inflation.

Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics

UPDATE: The full Steve Forbes interview is now online here.


  1. Wages automatically gain 3.5% for in a 2% inflation scenario? Really? I have never had a job where my salary was in any measured against, indexed to, or adjusted for inflation or where the concept of inflation was ever even mentioned or discussed by my employer.

  2. Productivity increases if there is inflation or not. It's clear the fed has no clue about making stuff. When the next generation of a product is being designed and developed there is often a cost target which is set below the cost of current product. That doesn't always happen because of the market demands for new features, government mandates, and the nature of product development, but if it can happen the cost goes down. Then there are on going process improvements and so on. Inflation is fought, it doesn't stimulate, it just makes hitting the cost targets more difficult.

  3. I would like to see some evidence that wages keep pace with inflation. I would argue the opposite, inflation always outpaces wage increases. Inflation makes life very difficult for lower income people - the inflation comes waaaaaay before the wage increase.

    1. Maybe it would be more efficient for the fed to pay their money directly to workers to reach their target 3.5 % wage increase rather than the roundabout way.

      One thing that isn't mentioned is that even if inflation increases wages over the long term, the tax brackets usually don't change, which means people gradually move into higher brackets without ever making any more money when adjusted for inflation.

  4. Perhaps the 3.5% is calculated in the same spirit as the $0.77/$ gender wage gap.

    (A) 36 Fed-connected executives see their incomes increase 100% plus (B) 1,000 lower class workers see zero income increase = (C) 3.5% average wage growth.

    1. The first thing I did when I saw this video is go to Google to see if I could find ANYWHERE some thing that suggested 3.5% average annual growth in incomes over the last 100 years.

      Here some more from the Fed:

      Even using "inflation adjusted" numbers is dangerous because it's a moving metric that's politicized.

      Not only could I not find anything suggesting this, most of the data I came across seems to start at the 40-50 year window....and it shows no where near that figure. The closest I came on one piece of data is 1.9%, but I stumbled across this which shows a far less rosy picture(done by quintile):

      I didn't have a lot of time, but I looked at real, nominal, & inflation adjusted figures just so I could say, "Well, ok, he's using this metric" and I couldn't find anything close to 3.5%.

      For someone more talented than me in research & with more time, I think this statement of his could be blown out of the water....and if not, we as Austrians better know it and know why.

  5. The Fed itself has published research disputing every word he says....