Fed’s mandate is to ensure stable prices

Published in the Financial Times.

Sir, Michael Brownrigg (Letters, Oct. 4) makes a common, but fundamental, mistake in claiming that the Federal Reserve’s mandate includes “low inflation”. To the contrary, in the governing statute, Congress instructs the Fed to pursue “stable prices” not low inflation. Public confusion is understandable, since the Fed endlessly recites the oxymoron that “stable prices” means perpetual inflation (at the rate of 2 percent).

Mr Brownrigg is correct that there is no statutory instruction to the Fed to treat everybody equally. This does not change the egregious fact that the Fed has engineered a massive wealth transfer from savers to borrowers and leveraged speculators. To take a lot of money from some people and give it to others is a quintessentially political act. To whom is the Fed accountable for it?