Blogs & Comment

Time for change includes the Fed

Lets Volckerize the Fed. Thats the catchy title of a piece by Martin Hutchinsonon the need to stop the Federal Reserve from putting the world economy through a succession of credit binges and increasingly excruciating hangovers.
Paul Volcker, as you may recall, was Fed chairman from 1979 to 1987 and he was credited with taming the double-digit inflation of the 1970s. He was successful because he was given a free hand. Now its time to institutionalize greater independence in the Fed so we can have more Paul Volckers, writes Hutchinson.
That means making the Fed less of a decentralized institution. It also means doing away with the dual mandate to promote both price stability and full employment in favor of a primary focus on price stability.
I would add that price stability should be defined with reference to asset prices as well, not just prices of consumer items. In my opinion, the monetary excess was not just a reflection of political meddling and a dual mandate but also a policy error i.e. an inappropriate definition of price stability that allowed monetary policy to become too loose.