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Fed’s policies contradict each other

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Fed’s policies contradict each other

Letter to the Editor in The Financial Times

Sir, Henry Kaufman frets that “libertarian dogma led the Fed astray”
(April 28). Congress, not free-market ideology, is the real culprit.

reason is mission creep. The Fed’s original job was to keep inflation
low by keeping the money supply in check. That’s it. The
Humphrey-Hawkins Act of 1978 expanded that mission to include keeping
unemployment low.

Low-inflation monetary policy and
low-unemployment monetary policy contradict each other. If the Fed
keeps inflation low, then it cannot lower unemployment rates through an
artificial inflation-induced boom. If the Fed wants to lower
unemployment, it must forgo low inflation. Worse, since a bust always
follows an inflationary boom, business cycles become more volatile.

results speak for themselves. The Fed can control inflation – if left
free from political interference. But it cannot also accomplish its
other missions, especially through the un-libertarian means of
manipulating price levels. Where is the libertarianism?