Bryan writes,

the effect of the exchange rate on the price of gas turns out to be enormous. Our present search for scapegoats is deeply misguided, but a few people really are personally responsible for the high price of gas. Contrary to popular opinion, though, they aren’t CEOs in the oil industry; they’re the leaders of the Federal Reserve System. It’s easy to point fingers; but sometimes finger-pointing is right on target.

The fact that the depreciation of the dollar caused some of the increase in the dollar price of oil is correct. However, I tend to shy away from Fed-bashing. The problem is that the Fed has only one instrument (intervention in the short-term money market), and in the economy there are many targets. Anybody can blame the Fed for missing target X. But to be useful, such a criticism has to say what other targets the Fed would have missed had it hit target X.

In this instance, Bryan is blaming the Fed for not stabilizing the exchange rate. But treating the exchange rate as the target would have meant messing up the inflation rate as a target. Back when the world was sopping up U.S. assets (the late 1990’s and the early years of this decade), stabilizing the exchange rate would have meant printing money like crazy, causing inflation. In the past few years, with capital flows heading the other way, stabilizing the exchange rate would have meant contracting the money supply, with all the consequences that brings.

The moral of the story is that when you criticize the Fed, it should be in the context of understanding the relationship between targets and instruments. Assigning more targets to the Fed (stock prices, home prices, the unemployment rate) without specifying the trade-offs or the additional instruments that might be used to achieve those targets is not a constructive form of criticism.