The Fed Changed Its Mandate and Inflation Followed

Recasting its dual mandate as a short-term goal for unemployment was a distraction

Leter to The WSJ.

"Regarding “How U.S. Officials Got Inflation Wrong” (U.S. News, June 14): In 2015 the Federal Reserve raised interest rates, predicting that inflation would return to 2%. Yet from 2015 to 2019, inflation rates surpassed or reached 2% only about 26% of the time. In 2017 and 2018, however, the Fed raised the federal-funds rate by 25 basis points at nearly every other meeting. It didn’t look at past policy errors. By mid-2019, the Fed realized it had overtightened and cut rates. In 2020 Covid struck.

The Fed conducted town-hall meetings in 2019 and 2020 called “Fed Listens,” after three years of deafness. Progressives pressured the Fed to not be pre-emptive—essentially endorsing President Trump’s past complaints. This time the Fed adopted a policy framework emphasizing employment.

This was a mistake. The Fed became pro-growth as supply chains broke. Monetary policy became too stimulative, and as fiscal stimulus ramped up, inflation emerged. The Fed’s recasting of its dual mandate as a short-term goal for unemployment was a distraction. It allowed inflation to take hold as progressives tried to bend the Fed to the task of creating more jobs and fighting climate change. The Fed’s errors that led to inflation stemmed from policy priority confusions, not from intractable technical issues.

Robert A. Brusca, Ph.D.

FAO Economics

New York"