Binyamin Applebaum has a nice profile of Richmond Federal Reserve President Jeffrey Lacker and his perennial dissents from Federal Reserve Open Market Committee statements, but he doesn’t seem to have asked Lacker the number one question I’d have—if you keep dissenting because the Fed is picking inflationary policies, and we keep not getting the inflation you’re warning about, then shouldn’t you change your mind about something?
Apparently that’s not how Lacker sees it. Indeed, being an inflation hawk in general seems to mean never having to say you’re sorry. I saw Charles Plosser from the Philadelphia Fed talk over the weekend, and he (like Lacker) was very troubled about the possible future inflationary consequences of recent Federal Reserve initiatives. But he, too, seemed to have forgotten that he’s been warning about this for a while and it keeps not happening.
Given the non-responsiveness of either current inflation or market measures of expected future inflation I reach the conclusion that communications about future objectives are highly credible and effective. The Fed said inflation wouldn’t go over 2 percent and people believe them. When they softened and said maybe they’d permit inflation in the 2-2.5 percent range for a year or two but no longer that seemed to push inflation expectations up just a tad. The world is behaving as if Ben Bernanke is right about how to contain inflation risks. Or at least so it seems to me (and to Bernanke). How does it look to Lacker? To Plosser? To Richard Fisher and James Bullard? It’s important to know because hazy and unwarranted fear of unspecified risks is historically one of the main drivers of bad monetary policy.