This article discusses how Joseph Sternberg, who writes for the Wall Street Journal, thinks the Fed has created the worst inflation in over forty years through excessive tightening. He states that “the central bank could cast the economy into a recession for no good reason” and feels that the Fed should be held accountable similarly to elected officials. Sternberg believes that the Fed should be held politically responsible by having state governors appoint Fed regional bank boards (which then appoint the regional bank president) and empower “the US president to fire at will members of the Board of Governors.” Moreover, the article's author, Alexander William Salter, agrees with Sternberg and believes that Congress should change the Fed’s mandate to focus solely on price stability. He states that the Fed should be required to target the price level or nominal GDP. The Fed can choose the metric, but it must stick with it, and its leaders must be accountable for hitting the target on an ongoing basis. The author believes that failure should result in punishment, up to and including dismissal, and that the Fed’s strategy of using interest paid on reserves to implement monetary policy gives it too much power. The Fed can arbitrarily increase its balance sheet, giving it control over credit allocation. Essentially, the Fed pays banks not to lend, incentivizing banks to keep more significant reserve balances in their Fed accounts. The author gives more instances to regulate the Fed and remove some of its power.
https://www.aier.org/article/the-fed-and-political-independence-its-complicated/
I think the suggestions to help this issue are valid, however, I think that this opinion piece by the author is being a little harsh on the government's policies and other incentives. "Where one door closes another opens" and I believe that to be true in this instance as well. We may not know exactly what to expect, but I think in due time we will be better off than where we are now.
ReplyDeleteIt's intriguing to see Joseph Sternberg and Alexander William Salter's perspectives on Fed accountability and inflation. Do you think their proposed changes, such as empowering state governors in Fed appointments and focusing solely on price stability, would effectively address the concerns they raise? What potential challenges or unintended consequences might arise from such reforms?
ReplyDeleteIt's an interesting argument that the author poses. Because of the theory learned in class, I feel like we are in unprecedented times with the 2020 shut down and then the boom in employment in March after that. Based off of what we went over in class I feel like this is at least a better response than increasing taxes or upping government spending but there are so many parts involved it's hard to confidently say.
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