Even if it is nominally independent, the Federal Reserve is arguably the government’s most important agency. It has control over the price system, the most fundamental part of any economy. It also exercises significant power over the banking sector, and in recent years has taken to doing large favors for Wall Street. These are all reasons why Janet Yellen’s nomination for Fed Chair needs to be carefully vetted. To that end, my CEI colleagues John Berlau and Iain Murray and I put together some questions about several facets of the Fed’s mission we would like to Yellen answer, whether during her confirmation hearing or elsewhere. You can read the short WebMemo here. Here is one of our questions about inflation:
Many observers expect you to pursue an inflationary stimulus, and believe this is likely a reason for your nomination. If your actions are already expected, will markets not take these expected price level changes into account in advance? If so, do you believe this would blunt the employment impact of any monetary expansion? Would you respond to these pre-existing expectations with an unexpectedly high inflationary policy?
As John, Iain and I write, Yellen’s credentials are not in question. But the policies she might pursue as Fed Chair are. Read more here.