The JEC report on the economy
By Scott Sumner
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