Quote

The Fed should make a clear commitment to stable money to reduce the swings in interest rates and inflation. Instead, it champions and flaunts unstable money. This encourages momentum trading and the growth of derivatives. Meanwhile, layers of financial regulation make Washington bigger and more powerful but don't fix the underlying problems.

It is understandable that the Fed injects cash to avoid the collapse of the stock market, but basically it is bad policy for monetary authorities to intervene to save speculators from bankruptcy. This is not their role.

If Congress wanted to intervene with the Federal Reserve, well, we created the Federal Reserve. We could uncreate it. But would you want Congress regulating the money supply? We'd have drowned in inflation, or gone bankrupt, decades ago.

I continue to think many of the factors holding down inflation are transitory... We want to be careful not to jump to a premature conclusion about what's in store for the U.S. economy.

I have never believed that central banks should have rigid inflation targeting. That is not a good thing to stabilize. There is nothing in economic theory to back this.

True enough, the Fed needs radical reforms. In particular, it needs to replace its failed forecasting models and be rid of the academics who overwhelm the Fed system.

During the Greenspan-Bernanke era, the Fed has embraced the view that stability in the economy and stability in prices are mutually consistent. As long as inflation remains at or below its target level, the Fed's modus operandi is to panic at the sight of real or perceived economic trouble and provide emergency relief.

But clearly an economy that's growing and expanding like this one - and it certainly is doing that with high GDP output, employment numbers strong, capacity utilization strong - that's an environment in which the Fed needs to continually be alert to early signs of inflation.