At Bloomberg View Tim Duy is concerned that the Fed is losing track of its so-called “dual mandates”—inflation and employment:
When central bankers lose focus on their primary mandates — inflation and unemployment — the odds of a policy mistake rise sharply. Remember that the most likely cause of a sustained drop in asset prices will be a recession and the associated fall in profits. That means that if central bankers wait until asset prices roll over before they stop tightening, they have almost certainly waited too long. I don’t think the Fed is in imminent danger of making such a mistake, but I can see the genesis of such a mistake if the bank turns rate decisions too much toward financial stability concerns.
The Fed also has the responsibility of regulating banks. Where did that one get lost?
The Fed has been distracted from its most important mandates for well over a decade and that was one of the many causes behind the financial crisis of 2007. As well as I can tell, if you didn’t know that the Fed had actual mandates written into its empowering legislation, you’d think its main purpose was to ensure that the stock market went up.
Is the Fed losing track, or did it ever have any traction?
Since the early 1970’s (that magical time), the Fed has been more worthless than ever, and since 1999, it has been totally worthless.
The Fed is the cart, and the economy is the horse. Unsurprisingly, the cart’s attempts to lead the horse are rather useless. @Ben Wolf can explain why leading the horse to water is useless.
As to regulating banks, this pre-dates the 2008 financial crisis. We should ask to give us a lesson in how to properly regulate a bank. As President of the New York Fed, Timothy Geithner regulated the banks into the housing bubble.
Best of all, President Obama was talking out one side of his mouth while his Secretary of the Treasury was working day and night to restore the bonuses to the fat cat Wall Street Bankers.