[LS]

"We need to lower the risks factors so we turn the Fed Chairman meetings into a boring position like having a regular physical. Increasingly becoming dependent on a heart surgeon or Fed Chairman's world class expertise almost becomes a moral hazard in itself. Better, it would seem, to not be as interventionist, allow more market discipline to take place at earlier stages before the whole system is put at risk. Eventually there will be a Fed Chairman no matter how smart who will not make the right call."

This is Friedman's argument and it's essentially right. Where the disagreement comes in is which measurement tool you use to effect an automatic rate hike or rate cut. Is it CPI? GNP growth? It is not as simple as it sounds, which is one reason the Fed looks (supposedly) at a myriad of factors to determine if the economy is heating up or cooling down.

[baseball_fan]

"Where the disagreement comes in is which measurement tool you use to effect an automatic rate hike or rate cut. Is it CPI? GNP growth? It is not as simple as it sounds, which is one reason the Fed looks (supposedly) at a myriad of factors to determine if the economy is heating up or cooling down."

Why wouldn't it be the CPI if the Fed's role were limited to maintaining the soundness of the currency? What did Volker use?

People have come to rely on a Greenspan "put" which is inducing moral hazard behavior that eventually will inject greater instability into the system. I realize now that "full employment" is a legislated target, but trying to accomplish that through Fed policy (if that is happening) seems to put us back on the slippery slope. Better to accomplish these other goals through non-Fed policy?