Once a year, one of the most important central banking conferences in the world takes place, in Jackson Hole, Wyoming. Per the Federal Reserve Bank of Kansas City, the purpose of the two-day event is to “discuss long-term policy issues of mutual concern:”
The event brings together economists, financial market participants, academics, U.S. government representatives and news media…
Despite touting diversity, we need not look at the symposium program guide to know that Austrian economics will not even be discussed. However, “average inflation targeting” will most certainly get top billing!
In a speech that CNBC promises will be “profoundly consequential,” the mainstream news outlet explains average inflation targeting:
Simply, it means that the Fed, which has pegged 2% as a healthy level, will let inflation run higher than that for a while if it has spent a considerable time beneath that level. The Fed’s preferred inflation gauge has stayed below that level for all but two years since the Great Recession ended in mid-2009.
We can only imagine what anyone who knows about Austrian economics would say at the meeting, but of course no one with these “radical” ideas would be invited to Jackson Hole. So let’s see what those who support the Fed are saying. One pundit from CNBC expects
the Fed to “seek a moderate inflation overshoot during the recovery phase of this cycle” as a way to avert “Japanification.”
Indeed! Deflation is not the only threat to civilization. Add to the list “Japanification,” which CNBC describes as an “extended period of low growth marked by weak inflation.” The desire to avoid Japanification is ironic, considering that Japan was the first major economy to turn to zero interest rates, doing so in 2001, and then quantitative easing and negative rates, which it put in place in 2014. Neither growth nor inflation increased according to plan. Therefore the Fed is implementing a similar strategy, using the same low rates and stimulus measures. The only difference is that what failed in Japan will somehow work in America! We can only hope that the alternative to Japanification won’t turn out to be “Venezuelaficaton.”
It gets better. CNBC goes on to say:
Along with the inflation move, the Fed also, as indicated by the minutes from its July meeting, appears likely to reinforce its commitment to full employment.
And thus the Fed’s infamous dual mandate of stable prices and maximum employment will be achieved. The Fed often cites its mandate as underpinning a holistic idea of perpetual economic growth. They use phrases like “stimulate aggregate demand,” which is a fancy way to say “increase GDP in the long term,” because they see increases to GDP as good. What they won’t say is that these efforts to stimulate demand, via money creation and interest rate manipulation, cause adverse side effects.
Monetary stimulus leads to currency debasement, which destroys purchasing power, causing a rise in asset prices and increases in the cost of living. But the central bankers downplay this. All they see is the inflation data point. Even worse, they have the audacity to look at the last decade and tell us that inflation has been far too low, such that in the years ahead they must take stronger efforts to “overshoot” their inflation target. The central bankers tell us that these increases in consumer prices are inextricably linked to this notion of full employment: when the right amount of inflation meets the right amount of employment, the dual mandate will be achieved, ushering in a new era of prosperity!
It’s a daunting task to say the least. But there are still more tricks in the Fed’s toolbox, including the powerful option of Fedspeak:
To fulfill both pledges, the Fed will need to commit to keeping rates anchored near zero until the goals are met. Where the move to what it calls the “zero lower bound” had been previously considered unusual, it now will become standard practice, at least until the Fed meets its mandate.
Because “zero bound” wasn’t good enough, their new goal is to move closer to the “zero lower bound” in due course.
The world waits in anticipation to find out what central planners will think of next, but this will definitely be one to remember.
