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Judy Shelton, a possible nominee for the Federal Reserve board of governors, has questioned the Fed’s dual mandate, that is, to target full employment and stable prices. Traditionally the two goals are thought to be at odds with one another. Shelton isn’t the first to question the dual mandate, and I agree with her that it does seem unworkable. Bloomberg reports on Shelton’s comments here:
Judy Shelton, a conservative economist being considered by the White House for a spot on the Federal Reserve’s Board of Governors, isn’t convinced the goals set for it by Congress are relevant for the U.S. central bank.
“I would probably be highly skeptical of those,” she said in an interviewwith Bloomberg Wednesday, referring to the mandate in the Federal Reserve Act that calls on the Fed to pursue maximum employment, stable prices and moderate long-term interest rates. “Those are such nebulous objectives.”
Currently U.S. executive director for the European Bank for Reconstruction and Development, she specifically questioned the employment mandate. “I don’t know that that is really the Fed’s job,” she said.
Shelton, who has so far not been nominated for the Fed vacancy, made the remarks in a wide-ranging discussion with Bloomberg journalists in Washington that revealed her willingness to challenge some of the fundamental notions of mainstream monetary policy and macro-economic thinking.
In addition to questioning the helpfulness of the Fed’s mandate, she also threw doubt on the wisdom of a central bank using benchmark interest rates to adjust the price of money, and thereby guide an economy toward a sustainable level of growth.
“A Fed that is too eager to artificially put in an interest rate that isn’t close to what the market would be suggesting is not so good,” she said. “I would try to be the voice saying, are you sure you know better than the markets?”
On jobs, she suggested the 3.6% rate of unemployment registered in April, a 49-year low, had more to do with President Donald Trump’s pro-growth policies than with a decade of historically cheap money the Fed delivered to help dig the economy out of the worst recession since the Great Depression.
Read more here.
Jeremy Jones, CFA
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