Donald Kohn is Vice Chairman of the Federal Reserve Board. On Saturday, he participated in a question and answer session at Vanderbilt University, and…
…well, the WSJ blog describes it nicely.
Federal Reserve Vice Chairman Donald Kohn’s question-and-answer session at a Vanderbilt University conference Saturday was going as countless others surely have in his years as a top policy maker.
Until Paul Volcker raised his hand.
Maybe Volcker has decided that if they are going to ignore him in Washington, he will take his show on the road.
Volcker is from your grandfather’s generation. He enjoys asking silly questions like, how can rising prices be stable prices? And what are you thinking paying banks interest on their reserves? And are you really sure it is a good idea to buy lots of things that are not Treasuries?
I do love that man.
More at Calculated Risk.
Nemo, they’ve been inflation targeting for at least a decade +
By Jim Grant
Grant’s Interest Rate Observer
December 2, 2005
Former Fed governor Laurence H. Meyer, in a 2003 talk at the Federal Reserve Bank of St. Louis, described a telltale exchange on the subject of how to define[price/financial] stability. The scene was Meyer’s first FOMC meeting, in July 1996, and governor Janet Yellen was making the case for inflation targeting; she said she would aim for 2%. Greenspan replied that the Federal Reserve had a mandate to foster stable prices, not rising ones. To which Yellen rejoined that the Fed also had a mandate to promote full employment. To hear her tell it, a small positive rate of currency depreciation is a necessary lubricant for economic growth (not so, according to a survey of 133 economists over 50 years, produced in 2002 by Stanley Fischer et al.)
“Janet then seized the initiative”, Meyer related,”asking the chairman how he would define price stability. Greenspan tried to get away with his vague definition; ‘Price stability is the state in which expected changes in the general price level do not effectively alter business or household decisions.’ But Yellen pressed him and asked him if he could put a number on that. Remarkably, the chairman agreed, and said he preferred zero inflation, correctly measured. Janet asked him if he could settle for 2% incorrectly measured.”
Meyer finished his story;
During a go-around on the topic, only a few Committee members preferred a target of zero, and the consensus was very strong for a 2% target. The chairman ended up summarizing the discussions ‘an agreement for 2%’ but he cautioned members not to reveal that such a discussion took place.