Tags: Heller | Fed | inflation | stable

Former Fed Gov. Heller: Fed's 2 Percent Inflation Target Not Part of Its Mandate

By    |   Monday, 23 March 2015 07:40 AM

The Federal Reserve has adopted a 2 percent inflation target and says it won't raise interest rates until the actual rate moves closer to that target.
 
The Fed's favored inflation gauge, the personal consumption expenditures price index, climbed only 0.2 percent in the year through January.
 
But the central bank's mandate to foster "stable prices," as laid out in the Federal Reserve Act, has nothing to do with 2 percent inflation, says former Fed Gov. Robert Heller. Stable prices mean zero inflation, he writes in an article for Project Syndicate.
 
"The term 'stable prices' is self-explanatory: a bundle of goods will cost the same 10, 50, or even 100 years from now. By contrast, if a country experiences 2 percent inflation over a 10-year period, the same items that $100 can buy today will cost $122 at the end of the decade," he notes.
 
"Congress did not give the Fed a mandate to pursue that goal. As long as inflation is somewhere between zero and 2 percent, the Fed should declare victory and leave it at that," Heller writes.
 
Meanwhile, New York Post columnist John Crudele says there is a good reason why the Fed's policy statement Wednesday indicated the central bank will remain cautious about raising interest rates: the economy is too weak to justify a rate increase.
 
"The Federal Reserve took a swing at the financial markets on Wednesday, but it was wielding a feather duster," he writes. "The Fed has been itching to raise interest rates for the last two years, but the weak economy has stymied it."
 
The first sentence of the Fed's policy statement tells you all you need to know, Crudele says. "Information received since the FOMC met in January suggests that economic growth has moderated somewhat."
 
The Atlanta Fed's estimate of first-quarter GDP growth stood at only 0.3 percent as of Tuesday. The economy expanded 2.2 percent in the fourth quarter.
 
"Despite what [Fed Chair Janet] Yellen says, the economy is barely moving. It's dead in the water. And despite what the Fed says, this has to be of enormous concern," Crudele argues.

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The Federal Reserve has adopted a 2 percent inflation target and says it won't raise interest rates until the actual rate moves closer to that target.
Heller, Fed, inflation, stable
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2015-40-23
Monday, 23 March 2015 07:40 AM
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