This reminds me of Don Quixote

In the pursuit of the “impossible dream”:

Fed officials are mulling over changes to how they communicate to the public where they expect interest rates to be in the future. Federal Reserve Vice Chairman Janet Yellen said last week she supported an approach backed by some other policymakers in which the Fed would state how high inflation would have to rise or how low unemployment would have to fall before it would move rates, which have been near zero since late 2008.

“It’s possible to get to a threshold number for unemployment, as long as we present it as indicative of a broader evaluation,” Mr. Lockhart told reporters after a University of Virginia Investing Conference. Ms. Yellen also said that any specific levels wouldn’t lock the Fed into changing its policy, but rather would trigger a discussion about the proper policy.

They could, or should, state an NGDP level target and just shoot for it. Much simpler way to get the message across (and to get employment up and unemployment down)!

And once the target T level is attained, specify a target growth rate for nominal spending from that point on.

The data file for monthly NGDP from Macroeconomic Advisers is here

One thought on “This reminds me of Don Quixote

  1. I think Market Monetarists are right, and Marcus Nunes is right in this post.

    I would go even further—that transparency is key to Fed success. Not only in policy announcements, but in deliberations. Put FOMC meetings on CSPAN, and allow for moderated questions at end of meeting. Perhaps move the Fed into the Treasury Department, as the connection between the two is getting stronger and stronger—think QE and federal budgets.

    Is monetizing the debt a Treasury action? I think so. So then why is the Fed not part of the Treasury?

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