Why are Central Banks using Economic Growth Control Mechanisms to Control Inflation?

[tommcginnis]

Niceee... simple working stuff for Fed. that's why they are now calm with inflation above 2 percents. Can we expect further stock rally because of that?

(Borrowing from H.D.Thoreau...)
"Stability stability stability."
I think we can expect the FED to adhere to --
* a regular communications policy,
* clearly established expectations, with
* a rule-based policy, which still contains
* a 'range of reasonableness' that still allows the policy-makers to miss a little bit here, go over a shade there, etc etc.

The Taylor Rule speaks well to such a framework, and the talk that it should be tossed is just plain scary, and should will cause a lot of people to seek non-market cash-holders (like gold, cuz, y'know, "gold.").....

 

[morganist]

(Borrowing from H.D.Thoreau...)
"Stability stability stability."
I think we can expect the FED to adhere to --
* a regular communications policy,
* clearly established expectations, with
* a rule-based policy, which still contains
* a 'range of reasonableness' that still allows the policy-makers to miss a little bit here, go over a shade there, etc etc.

The Taylor Rule speaks well to such a framework, and the talk that it should be tossed is just plain scary, and should will cause a lot of people to seek non-market cash-holders (like gold, cuz, y'know, "gold.").....

The point of the article is GDP is something you target in itself like inflation. So why are they using GDP control mechanisms to control inflation?

Just by changing the control mechanism to hit either GDP or Inflation targets negates a lot of the debates on the topic. Read the article it will explain.

 

[treeman]

The FED says a lot of things, and they do a lot of math, and all that jazz, but the decision to raise rates or not really comes down to the employment level. More specifically, wage inflation, which is driven by the level of employment.

When the economy is running hot (higher than desired wage inflation), and the fed looks to create a pool of unemployed workers (who society them shames for being lazy, and taking gov't handouts) by raising rates. The people who lose their jobs are always the lowest paid people. This pool is then used as a reserve for when they need the people to go to work (wage inflation is lagging). They lower rates, and these lazy fucks are put to work again, bringing back wage inflation. Now, the FED may not specifically look to create this reserve pool of unemployed people, but it's certainly not an unintended consequence.

Everything they say, reports they release, st. Louis fed data, etc, is all just theater. Busy work for the non-decision makers. It really does come down to wage inflation. That's it.

Anyhow, the FED can't raise or lower rates much beyond the natural interest rate. If it does, things get out of whack. Right now, most economists feel the current natural rate is above the FED funds rate. BTW, no one really knows what the natural rate is. It's like the MACD, it's always late to confirm. You can make educated guesses, but they will be wrong.

 

[tommcginnis]

Conspiracy, much?
Sucking up too much of that gummint chemtrails?

Meanwhile, back here on Earth, we recognize that the Fed's 'Stable Money' mandate (expanded in the early 60s{?} to include stable employment) DOES NOT INCLUDE GDP, nor does include ANYTHING to do with fiscal policy (much to Idiot Ignorant Congress's lament),
so, when specifying this little question in a model, only idiots or ignoramuses would labor to include economic output as a choice variable. (Or similarly, to project "create unemployment" as a viable policy option. )

The FED's Dual Mandate: maximize monetary stability, while minimizing unemployment.

Learn it, guys.
Sheeesh.

 

[treeman]

haha. Minimize unemployment. That's a good one. It's actually maximum sustainable employment. There's a lot of room for interpretation on that. Define sustainable, especially as wage inflation increases.

Question for you, if the gov't were to guarantee jobs for everyone (the work exists), is that a desired outcome for the FED? or would they have to raise rates as a result?

 

[Bill.C.]

One thing I've never thought about when it comes to inflation is that Central Banks often issue government bonds to make a tidy profit, then wipe out investor profits by devaluing the currency. You see this kind of behavior sometimes in EU contries not part of the Eurozone.

 

[dozu888]

One thing I've never thought about when it comes to inflation is that Central Banks often issue government bonds to make a tidy profit, then wipe out investor profits by devaluing the currency. You see this kind of behavior sometimes in EU contries not part of the Eurozone.

in the case of the US Fed, majority of the profit from the bond holdings interest goes back to the Treasury... in Europe where many central banks are state owned, the profit goes directly to the government.

the systems we have right now actually aint that bad.

controlled, not runaway, inflation, is a good thing, it stimulates investment and risk taking.... asset investors holding equities/real estate/etc are naturally hedged... no problem. yes bond/CD/cash holders get hosed... but we dont have any alternative.

the conventional wisdom stuff, gold base etc, and lately the cryptos... can't stand 3 minutes of questioning.

 

[zdreg]

Regardless of the question of whether you should control inflation or not. The question raised is why do they use aggregate demand controls (another thing) to control inflation.

Read the linked article. This may be a bigger issue than the question of controlling inflation in the first place. There are other mechanisms which can control inflation.

how about back to basics like printing less money and less borrowing?
"There are other mechanisms which can control inflation."
correct, but no political will to control inflation. it is all a scam to enrich the politicians and fool the chumps who pay for it. the middle class.

 

[dozu888]

how about back to basics like printing less money and less borrowing?
"There are other mechanisms which can control inflation."
correct, but no political will to control inflation. it is all a scam to enrich the politicians and fool the chumps who pay for it. the middle class.

Fed's inflation target is 2%... and actually it hasn't been hit for a few years already... yes I know price indexing is never perfect science.

Whether 2% is optimal, of course is debatable, but these Fed people are seasoned economists, and we are going thru one of the longest expansion, after we almost seized up in 2008... so let's not fix it when it's not broken.

yes lots of money have been printed, but inflation has been so low it makes a lot of experts scratch their heads... foreign cheap labor maybe 1 factor, technology maybe another.

 

[Tsing Tao]

Someone please tell me how monetary policy can directly affect unemployment. Or even "maximize sustainable employment" in today's world. Please, also tell me what other central banks have this mandate?