The Federal Reserve’s massive easing campaign risks rampant inflation, just as has been produced in prior episodes of accommodative monetary policy, says Paul Moreno, a history professor at Hillsdale College.
“The Federal Reserve, which celebrates its 100th anniversary this year, is tasked by Congress with managing the money supply so as to preserve price stability while maximizing employment,” he writes in The Wall Street Journal.
“But with the central bank having increased the money supply by 25 percent since the financial crash of 2008 — while the federal government has borrowed $5 trillion — can inflation be far off?”
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The implementation of the Federal Reserve System in 1913 — a “dangerous delegation of monetary power to an unelected bureaucracy” — has led to an inflationary epidemic, Moreno says. “From 1800 to 1913, prices rose 176 percent; since then they have risen 448 percent.”
The Fed’s easing episodes have been quite destructive to the economy, Moreno argues.
“The lesson of American history is that it is difficult enough for the government to resist popular demands for inflation to relieve private debts,” he writes. “When the government itself is the country's chief debtor, resistance is all but impossible.”
Minneapolis Fed President Narayana Kocherlakota disagrees with Moreno’s assessment of current Fed policy, as he thinks more easing is necessary.
"My outlook for both inflation and unemployment means that the [Fed] should provide more monetary accommodation," Kocherlakota said in a speech this week, Reuters reports.
He thinks the central bank should shift the threshold at which it would raise interest rates to 5.5 percent unemployment from 6.5 percent currently.
Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did
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