The Joint Economic Committee of Congress has released a report that responds to the 2019 Economic Report of the President. The table of contents has a section on monetary policy, which caught my eye:
Later on in the report (page 33) I saw this:
Scott Sumner (2018) offers a proposal that involves the Federal Reserve setting “specific quantifiable goals” for price stability and maximum employment, or a metric that simultaneously embodies both, over the upcoming year. After the year has elapsed and the data becomes available, if the relevant metric(s) varied from the pre-specified goal, the Federal Reserve would report to Congress that monetary policy had been either too easy or too tight, and would propose how it will rectify the deviation. This would make it easier for the Federal Reserve to explain and justify corrective measures. An enhanced public understanding and acceptance of Federal Reserve corrective measures would enable less invasive Federal Reserve interventions as markets would adjust their behavior in advance.
For example, if NGDP growth were used as the metric, and if it fell below the goal, then banks, anticipating corrective Federal Reserve measures, would be less inclined to curtail lending to hoard reserves, leading monetary conditions to ease and reducing the need for more drastic Federal Reserve interventions.
I may be biased, but it seems to me that Congress really “gets it”. I hope the Fed is paying attention to the policy views of their boss. Believe it or not, there’s a lot that Congress could teach the Fed.
HT: Alex Schibuola
READER COMMENTS
Lorenzo from Oz
Jul 19 2019 at 7:14pm
Score!
Benjamin Cole
Jul 19 2019 at 8:01pm
Great!
Garrett M
Jul 19 2019 at 11:04pm
Seems promising. What’s supposed to be the next step following this report?
Alan Goldhammer
Jul 21 2019 at 10:17am
The number one best step would be for Senator Kloubachar, a member of the JEC, to make this a keystone of her Presidential campaign. She could get Dr. Sumner to give her some advice as to how this would help stabilize the US financial system and then run on this as one of her positions. (The likelihood of this all happening is pretty slim but it sure would be great if it happens.)
The more likely avenue to raise awareness of this issue is to request Fed Chair Powell’s address this matter in his next semiannual report to the House and Senate committees that have jurisdiction. Unfortunately, that will be a bit of a wait as the most recent report was just submitted (July 10, 2019).
Daniel R. Grayson
Jul 20 2019 at 6:54am
That’s good news!
Alan Goldhammer
Jul 20 2019 at 7:45am
Excellent!!!
Michael Sandifer
Jul 20 2019 at 12:40pm
This is a nice surprise. Let’s see if it leads anywhere.
Federico
Jul 21 2019 at 7:44pm
Scott, that is fantastic! Also the language inside the monetary policy section sounds like someone who has spent a lot of time reading you (e.g., “never reason from a price change”). Are you more involved with Congress these days?
Scott Sumner
Jul 22 2019 at 11:04am
I would not say I’m more involved. I’ve met a handful of Congressional staffers, which might have helped to get some attention for our ideas. David Beckworth is more involved.
Thaomas
Jul 24 2019 at 7:32am
It’s good that they are paying attention, but the NGDP as a “stance” of monetary policy does not by itself translate into what Fed policy in 2009 or 2019 should have been. It needs a criteria for judging when the actual “stance” is different from the optimal “stance” and the backbone to “do what it takes” to eliminate the gap.
And I’m still not convinced that a NGDPL target rate of growth is better than a price level target rate of growth plus as “full employment” (broadly of all resources not just one specific measure of labor unemployment) target.
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