The new lineup on the Federal Reserve’s Open Market Committee should be an improvement over the old one, but incoming voting member and Richmond Federal Reserve Bank President Jeffrey Lacker doesn’t seem to even know what his job is:
“The Fed doesn’t control growth. We can interfere with it. We can impede it,’’ Lacker said. “But in general the growth rate the economy can crank out is determined by technology, people’s preferences, resource endowments, other policies and the like. Our job is to keep inflation low and stable.”
For starters, Lacker ought to check the Fed’s own FAQ page:
The Congress established two key objectives for monetary policy–maximum employment and stable prices–in the Federal Reserve Act. These objectives are sometimes referred to as the Federal Reserve’s dual mandate. The dual mandate is the long-run goal for monetary policy, and the Congress also established the Federal Reserve as an independent agency to help ensure that this monetary policy goal can be achieved.
Not low and stable, but stable and consistent with maxmimum employment. Different! Meanwhile, it’s completely true that what the economy can crank out is determined “determined by technology, people’s preferences, resource endowments, other policies and the like.” But then there’s the question of what the economy actually does crank out. If you have unemployed workers and idle capital goods then you’re cranking out less than you could because monetary policy is too tight. Conversely, if you try to push total economy-wide spending above the economy’s capacity to produce goods and services then money is too loose and you’ll get inflation. The way Lacker describes it, there’s no state of the world that would constitute money being excessively tight.