The Upper Bound in the Fed’s Head: Inflation

Continuing with one of my current hobbyhorses:

Ryan Avent reports on the American Economic Association meeting, with special attention to a presentation by Robert Hall:

Monetary policy: The zero lower bound in our minds | The Economist.

Mr Hall argued that:

A little more inflation would have a hugely beneficial impact on labour markets,

And a reasonable central bank would therefore generate more inflation,

And the Federal Reserve as currently constituted is, in his estimation, very reasonable; therefore

The Federal Reserve must not be able to influence the inflation rate.

… Why is Mr Hall–why are so many economists–willing to conclude that the Fed is helpless rather than just excessively cautious? I don’t get it; it seems to me that very smart economists have all but concluded that the Fed’s unwillingness to allow inflation to rise is the primary cause of sustained, high unemployment. …a macro challenge that actually boils down to the political economy constraints (or intellectual constraints) facing the central bank.

Emphasis mine.

I, of course, am less charitable, and impute other motives.

Hat tip to David Beckworth, whose feelings I fully understand:

I found the whole affair so depressing that I wasn’t able to drag myself to many sessions.

Cross-posted at Angry Bear.







2 responses to “The Upper Bound in the Fed’s Head: Inflation”

  1. Becky Hargrove Avatar
    Becky Hargrove

    After considering what happened at last week’s sessions, the only thing I can come away with is that I actually feel sorry for macroeconomists right now. So much work and effort is going into making circumstances better but the constraints of the overall system are quite unwieldy – not just in terms of battling theories, but especially in the tightly restricted markets of Main Street that make bonds the king of the present. Oddly enough though, these circumstances allow me to feel better about arriving ‘late to the party’ (somewhat late in life), so that I can consider things from a different perspective.