Thursday, August 11, 2011

The Federal Reserve Board Conservative Members are Worried About

The Deficit,  Unemployment,   Balance of Payments,   Federal Spending,  Taxes,  Economic Growth,   Inflation

Why:  Because They Are Ignorant  Uninformed   Bad Economists   Don’t Want Mr. Obama to Succeed

Ron Paul's Recurring Nightmare

The Federal Reserve Board held its monthly meeting and

said Tuesday that it would hold short-term interest rates near zero through mid-2013 to support the faltering economy, but it announced no new measures to further reduce long-term interest rates or otherwise stimulate renewed growth.

Now this was not exactly a strong response, given the rather dismal economic news that just keeps coming, but even this small effort to help the economy ran up against Conservatives on the Board.  Three of them voted against the policy.

There are signs that inflation is abating, as a temporary spike in commodity prices earlier this year works through the economy, and as growth weakens. But conservative members of the policy-making board remain focused on the risk that inflation will sneak up on the Fed.

The Fed has what is called a “dual mandate” a mandate to support economic growth and to control inflation.  Controlling inflation is not exactly a problem right now,

as this graph from Jared Bernstein nicely shows.  Year to year price increases on core inflation, which removes volatile food and energy prices that are relatively independent of economic conditions are well under control.

In fact, a  dose of excess demand generated inflation would be real nice, about as nice as a couple of weeks of temperatures with highs in the 70’s.  Right now, neither are going to happen.  And if inflation does increase, it will be because of non demand related factors, like health care costs, education costs, and other inelastic demand items where demand is influenced by factors other than the overall strength of the economy.

The Conservative Fed Agenda
But rather than deal with current problem Conservatives have an ideological agenda to pursue, and so they vote against the interests of the country and for their own political biases.

Just another day at the office for them.

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