Fed’s Bullard says he now favors targeting nominal GDP

Market Watch ^ | May 28, 2015 | By Greg Robb

[Oldeconomybuyer]

The uneven results of the Federal Reserve’s monetary policy since the financial crisis should cause new thinking about how to conduct interest rate policy, said St. Louis Fed President James Bullard on Thursday in advocating for a new, controversial target.

Standard economic theory predicted that the Fed’s decision to leave rates at zero and buy trillions of dollars of bonds would result in a consumption boom and above-average inflation, but that has not happened, sending economists back to the drawing board.

Under Bullard’s proposal, the Fed would set an overall inflation target. In good times, the central bank would keep inflation below that level. When a recession threatens, the Fed would print a lot of money and push inflation above target.

Under this policy, the Fed should have done more in 2007-2009 to get the price level rising and avoid having rates stuck at zero, he noted.

[Oldeconomybuyer]

[PGR88]

Please tell me how these people are any different from Soviet economic planners of the 20th century?

[grania]

May I speak logically? People know they're going to have to prepare for an insecure economic future. Lower interest rates on savings mean you have to save more and spend less in order to build financial security.

The rich? Their spending isn't going to change all that much because of interest rates. Want people to spend? Let them know if they put $5,000 in the bank this year, by the rule of 72, it would be $10,000 in 18 years. Then they'll have more disposable income once that $5,000 target is met. (as an example).