Tags: Fed | Bernanke | Volcker

Former Obama Adviser Romer: Bernanke Needs a ‘Volcker Moment’

By    |   Tuesday, 01 Nov 2011 08:50 AM

The Federal Reserve should take the bold step of setting an explicit target for economic growth to jumpstart a stronger rebound, says Christina Romer, former chairwoman of President Barack Obama’s Council of Economic Advisers.

Such a move by Fed Chairman Ben Bernanke would echo former Fed Chairman Paul Volcker’s 1979 decision to explicitly target money supply, she writes in The New York Times.

Volcker’s move ultimately broke the back of stagflation, setting the economy up for strong expansion and low inflation in the 1980s and 1990s.
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As for now, with 2.5 percent real GDP growth representing the norm, and the Fed holding an inflation target of 2 percent, it should implement a target for nominal GDP growth of 4.5 percent Romer says.

bernanke200apv4.jpg
Ben Bernanke
(Associated Press photo)
Real GDP growth totaled 2.3 percent in the third quarter.

“How would this help to heal the economy?” she asks.

“Like the Volcker money target, it would be a powerful communication tool. By pledging to do whatever it takes to return nominal GDP to its pre-crisis trajectory, the Fed could improve confidence and expectations of future growth. Such expectations could increase spending and growth today.”

Some economists expect new actions from the Fed soon to boost the economy, though not necessarily GDP targeting.

"The persistence of high unemployment and ongoing fragility of the economy . . . will prompt the Fed to take more unconventional actions as we move into 2012," Diane Swonk, chief economist at Mesirow Financial, tells Reuters.

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The Federal Reserve should take the bold step of setting an explicit target for economic growth to jumpstart a stronger rebound, says Christina Romer, former chairwoman of President Barack Obama s Council of Economic Advisers. Such a move by Fed Chairman Ben Bernanke would...
Fed,Bernanke,Volcker
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2011-50-01
Tuesday, 01 Nov 2011 08:50 AM
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