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Re-posted from the Political Blog to be Named Later:

Many Fed watchers have long said that the board, with is charged with the “dual mandate” of ensuring stable inflation and employment, does not actually pay equal attention to the two. In fact, a couple of weeks ago, I wrote that it would beyond the pale to say that these rich former bankers and economists, who exclusively mingle with other rich bankers and economists, take the interests of their friends in not seeing their massive fortunes eaten away by inflation more seriously than the interests of most American people who would like to see a strong labor market.

I was kidding of course, that is a huge part of the problem. Ryan Avent at The Economist got tired of analyzing how the Fed’s policies would accomplish their goal, and instead just counted words from the 2008 transcripts of meetings during the Financial Crisis. Avent found that the Fed cares ten times more about inflation than unemployment.

I don’t know how much more there is to say about this, so I’ll let Kevin Drum do it for me:


I don’t think this comes as much of a surprise to anyone, since it’s been obvious for decades that the Fed not only doesn’t care about unemployment, but gets positively worried when too many people have jobs. That would mean the labor market is tight and workers might get paid more, you see, and that could be inflationary.
And we wouldn’t want most Americans to win out over the friends of rich banksters and economists!
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Comment Preferences

  •  The goal is to keep people un & underemployed (2+ / 0-)
    Recommended by:
    JesseCW, Lily O Lady

    To keep wages low to keep inflation low. Everything is more expensive (food, gas, utilities, clothes, etc.) except for us. The evil fed works for evil WS.

    nosotros no somos estúpidos

    by a2nite on Wed Feb 26, 2014 at 12:56:54 PM PST

  •  When you're a hammer, everything looks like a (0+ / 0-)


    The Fed has historically had a difficult time recognizing changes in how the economy works.  They tend focus on winning the last war.

    "Because I am a river to my people."

    by lordcopper on Wed Feb 26, 2014 at 01:43:19 PM PST

  •  Naivety (0+ / 0-)

    First of all, inflation was a very real concern in 2008.

    The $U.S. dollar, as a result of the republican policies that led to dramatic budget deficits, fell dramatically.

    Take notice of the link, the $U.S. dollar went from peak to trough from 2001 to 2008, respectively.  A decline in value of $U.S. dollar causes inverse to price of oil and other world shown in this chart of commodity index:

    and this chart:

    On the other hand, unemployment at the start of 2008 was still 5%, dipped lower in February, 2008 to 4.9%, and remained below 6% until midsummer.

    The Fed is far from perfect.  But any suggestion that the Fed was misinterpreting the data is simply without foundation.

  •  Well, sure. (0+ / 0-)

    Conventional Wisdom back then was going Inflation! Inflationary cycle! ZOMG, fucking INFLATION!

    Meanwhile, someone smart (cough.Paul Krugman.cough) was warning about a deflationary cycle a la Japan.

    The stimulus (which Krugman presciently said was too little, too late) nevertheless helped us avoid the kind of deflationary cycle we've seen in Greece, etc.

    But the Conventional Wisdom was wrong then, has been wrong since then, and remains: WRONG

    English usage is sometimes more than mere taste, judgment and education - sometimes it's sheer luck, like getting across the street. E. B. White

    by Youffraita on Wed Feb 26, 2014 at 02:33:09 PM PST

    •  You're a bit early. (0+ / 0-)

      The idea of deflation and the need for Stimulus was not until late in 2008, after unemployment went above 6% and the recession was accelerating.

      But late in 2007 and early in 2008, commodity prices and the resulting potential for inflation was very real.

      The cause was a collapse of the $U.S. dollar from the peak in 2001 to the trough in 2008 because of republican budget deficits.

      Otherwise, I agree that Paul Krugman has been the most accurate in predicting the path of the economy since the fall of Lehman Bros.

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