Fed maintains interest rates while eyeing unemployment: CEI analysis

The Fed has decided to maintain interest rates while also turning its focus to unemployment, a move that CEI senior economist Ryan Young says would make the inflation problem worse.

“The Fed should focus solely on inflation. Monetary policy is a poor tool for creating jobs. That’s for entrepreneurs to do.

“The Fed has two mandates. One is to keep inflation low. The other is to keep employment high. Sometimes these goals contradict each other. A tighter monetary policy can cut inflation, but with the tradeoff of risking an economic slowdown. A looser monetary policy can stimulate the economy, but at the tradeoff of higher inflation. Either way, there’s a tradeoff.

“Chairman Jerome Powell is now signaling that the Fed will begin paying attention to both sides of its mandate. So, if the job market slows down, the Fed will be open to more stimulus. This would cause inflation, contradicting its low inflation mandate.

“All this is more important than this week’s decision to hold interest rates steady. Powell’s signaling a possible interest rate cut at its next meeting on September 18 is the cherry on top of a bad day for monetary policy.”