week for Congress to narrow the Fed’s mandate to focus only on fighting
But after becoming chairman in 2006, Mr. Bernanke largely put the inflation-targeting debate on hold, partly out of political considerations. The Fed is required by law to keep prices stable and to maximize employment. Some economists are concerned that by announcing an inflation target, the Fed would feel compelled to stick to it even at the cost of neglecting employment. Air Jordan 9 Mr. Bernanke has justified the Fed’s Nov. 3 decision to buy more bonds by pointing out that inflation is far lower than the implicit goal of just under 2 percent, while unemployment is, at nearly 10 percent, too high. Both sides of the Fed’s mandate called for it to act to spur growth, he said. Moreover, the Fed began publishing quarterly forecasts in 2007 in which officials offered their long-run projections for inflation. Based on those projections, most economists assume the Fed has an unofficial target for inflation of roughly 2 percent or under, and Mr. Bernanke confirmed that impression in an Oct. 15 speech. Even so, the inflation-targeting debate is not just an academic matter. A leading House Republican called last week for Congress to narrow the Fed’s mandate to focus only on fighting inflation, not on managing employment. In addition, several Fed officials, notably Charles L. Evans, president of the Federal Reserve Bank of Chicago, have called for a variation of inflation targeting called price-level targeting. The idea is to let inflation run a bit higher in the future to make up for inflation being too low today, and have the Fed aim for a long-term average. Inflation targeting, in contrast, would not take account of past inflation but just focus on current inflation in setting goals for monetary policy. Air Jordan 4 Along with inflation and price-level targeting, the committee also discussed on Oct. 15 whether the Fed might want to aim at an interest rate for a particular term security, like the benchmark 10-year Treasury note. But the committee appears to have set aside that idea because of “the risk that the Federal Reserve might find itself buying undesirably large amounts of the relevant security in order to keep its yield close to the target level.” In some ways, the October meeting was a prelude for the November meeting, which ended with a 10-1 vote for the $600 billion program but also reflected significant skepticism within the committee. According to the minutes, most participants in the meeting though the asset purchases would help push down long-term interest rates and bolster the prices of stocks and other assets, while “some observed that it could also lead to a reduction in the foreign exchange value of the dollar.” Most participants expected that those changes would “help promote a somewhat stronger recovery in output and employment while helping return inflation, over time, to levels consistent with the committee’s mandate. But there were substantial doubts, as well. Some participants thought the action “would have only a limited effect on the pace of the recovery.” They argued that the slow recovery did not respond to additional monetary stimulus and “that additional action would be warranted only if the outlook worsened and the odds of deflation increased materially.” Air Jordan 3 In addition, some skeptics said they feared the action would “put unwanted downward pressure on the dollar’s value in foreign exchange markets,” while others raised concerns that expanding the Fed’s balance sheet “could cause an undesirably large increase in inflation.” The minutes showed a consensus on the Fed that “progress toward reducing unemployment was disappointing,” but confirmed a disagreement on whether some of the increase in unemployment might be a result of structural changes in the economy, and impervious to attempts by the Fed to stimulate economic demand. For now, the mainstream view is that the current unemployment is “well above levels that could be explained by structural factors alone,” according to the minutes. Market-watchers said the minutes did not shed much light on what might cause the Fed to change its stated goal of buying $75 billion in Treasury securities a month through June, along with using about $35 billion a month in proceeds from its portfolio of mortgage-backed securities to buy additional government debt. Under the Fed’s new projections, inflation and unemployment would not return to their normal ranges until 2015 or 2016, Ted Wieseman, an economist at Morgan Stanley, wrote in a note to investors. The minutes, he wrote, suggest that an extension of quantitative easing beyond June “remains significantly more likely than an early curtailment (as long as the Fed retains its independence) even if the recent improved tone of the economic data continues.” Air Jordan 1