“Averaging” Inflation Does Not Eliminate The Flaws In The Fed’s Policy Approach; It Compounds Them
The Fed has been recently making the case that inflation above 2% (its current target) is potentially OK because past inflation was sub 2%. So what if prices lurch up? It’ll all average out in the end.
(From TheCarsonReport.com)
One of the inherent weaknesses of inflation targeting is the inability to balance consumer and investor expectations. That is, as policymakers attempt to simultaneously hit an arbitrary price target and anchor inflation expectations they are inadvertently un-anchoring investor expectations as it eliminates the fear of higher interest rates, encouraging extreme speculation and risk-taking in the financial markets.
That is, The Fed is encouraging “malinvestment.” The agency appears also to be violating its statute, which it often does.
This article was originally posted here: https://www.ac2news.com/2020/09/averaging-inflation-does-not-eliminate-the-flaws-in-the-feds-policy-approach-it-compounds-them/.
