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2020-09-07

The Fed risks higher inflation to boost jobs

The new framework for US monetary policy announced at the Jackson Hole symposium in August is a watershed event, for both the practice of macroeconomic policy, and the theory that lies behind it.

In the Federal Reserve Reform Act of 1977, following a period of “stagflation”, the US Congress gave the Fed three main objectives: maximum employment, stable prices and moderate long-term interest rates, in that order.

 In the early 1980s, Paul Volcker crucially interpreted that mandate to place the greatest emphasis on stable prices. He broke the back of double-digit inflation but at the expense of increasing unemployment to above 10 per cent.

Gavyn Davies FT 6 September 2020

www.ft.com/content/facfe2cf-c78e-4085-882e-fdac59f1329d

Stagflation

Volcker startade sedelpressarna, inte Greenspan.




Why did he do that?

Because the high US interest rates also started the LatinAmerica Debt Crisis.

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