Henry Kaufman: Critiques The Federal Reserve Strategy

The monetary policy of this Federal Reserve is to pump more money into the economy to raise the rate of inflation, in so doing, this Chairman hopes to gain an increase of the rate of personal consumption.

This is really a failed strategy, one unfit for the intellectual status that is the Federal Reserve.  Bernanke would be far better off if he assailed failed fiscal leadership in Congress and hammer away to implement a counter Keynesian strategy as embodied in Hayek.

None other than Henry Kaufman has critiqued the shortcomings of the strategy that now dominates the Federal Reserve.  He wrote six points:

1.  The Federal Reserve wrongly believes in its own power to contain inflation.  The Chairman would be better served if he pursued policies that eradicated barriers to labor mobility.

2.  The Federal Reserve must openly advertise an exit strategy with a pro-growth agenda in a fiscally restrained Congress.

3.  Use of a ‘core index’ that refuses to look at oil or food is useless.  Kaufman is urging a Federal Reserve to act in a manner to embody both great integrity and intellectual responsibility.

4.  The Chairman should not seek unanimity in his model of consensus making.  Kaufman urges the Chairman to speak openly and engagingly to the public, giving sound intellectual guidelines to any policies.  In a decentralized economy like ours, the public will discover and back sound economic policy.

5.  The use of inflation rate targeting to stimulate consumption where demand is flat is not sound macro-economic thinking.  Raise the fund rates and pursue a fiscally sound Congress.

6.  Stop publishing the ‘Summary of Economic Projections’ their meaningless.

According to Kaufman, an inflationary based monetary policy will heighten economic uncertainty.  At a minimum this approach will create two trends:

1.  Increase financial volatility

2.  A substantial depreciation in the purchasing power of the U.S. Dollar.

How to say it?  This Emperor has no clothes.

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About William Holland

Systematic Theologian/International Relations
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