A Quote by Charles L. Evans
It's a challenge for monetary policy to communicate that our inflation objective is 2 percent.
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The unique aspect of today's monetary inflation is that it is not limited to one country, but a host of countries are all inflating together. As a result of the monetary inflation (when all of the newly created money begins to leave the banks and enter the system), the price inflation will be worldwide.
Inflation is certainly low and stable and, measured in unemployment and labour-market slack, the economy has made a lot of progress. The pace of growth is disappointingly slow, mostly because productivity growth has been very slow, which is not really something amenable to monetary policy. It comes from changes in technology, changes in worker skills and a variety of other things, but not monetary policy, in particular.
The Federal Reserve's monetary policy objective is to foster maximum employment and price stability. In this regard, a key challenge is to assess just how far the economy now stands from the attainment of its maximum employment goal.
The challenge in fiction is to write a terrific story. The challenge in journalism is to communicate solid, objective information. The challenge in creative non-fiction is to do it both and to do it well.
Of course I welcome all the normalization of monetary policy. I think monetary policy should be normal.
Monetary policy will, as always, respond to the economy's twists and turns so as to promote, as best as we can in an uncertain economic environment, the employment and inflation goals.
Monetary policy should remain data dependent, be well communicated, and ensure that inflation expectations remain anchored.
Domestic inflation reflects domestic monetary policy.
Many emerging countries are facing the same issue of overheating and inflation because they have been vigorously expanding fiscal and monetary policy to counter the 2008 shock.
The role of monetary policy is to smooth out business cycles by promoting steady inflation and healthy labor markets, but modern central bankers have taken an activist turn.
The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.
My bottom line is that monetary policy should react to rising prices for houses or other assets only insofar as they affect the central bank's goal variables - output, employment, and inflation.
It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation or pays no income tax during years of 5 percent inflation. Either way, she is 'taxed' in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 100 percent income tax but doesn't seem to notice that 5 percent inflation is the economic equivalent.
If you continue to use monetary policy to attempt to promote full employment the result would be that you would have higher inflation, and that you would not have lower unemployment.
Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output... A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately in the absence of countervailing monetary policy action to further upward pressure on inflation.
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