The Fed Speaks: Inflation Delenda Est!
Via Matt Yglesias (writing from his new Moneybox home at Slate), I see that the Federal Reserve has, unsurprisingly, declined to adopt a policy of targeting nominal GDP growth:
A number of participants expressed concern that switching to a new policy framework could heighten uncertainty about future monetary policy, risk unmooring longer-term inflation expectations, or fail to address risks to financial stability. Several participants observed that the efficacy of nominal GDP targeting depended crucially on some strong assumptions, including the premise that the Committee could make a credible commitment to maintaining such a strategy over a long time horizon and that policymakers would continue adhering to that strategy even in the face of a significant increase in inflation.
Matt is unimpressed: "The claim that this would 'heighten uncertainty' seems to me to be just flat-out wrong." Of course it is. But that part of the statement is just window dressing anyway. The part that matters is in bold. Targeting higher NGDP levels would clearly involve tolerance for higher inflation, and there are lots of FOMC members who just aren't willing to go there, no matter how weak the economy is, how high unemployment is, or how big the risks from Europe are. Just as the Germans seem to be forever reliving the 20s, in the U.S. we are forever reliving the 70s. Inflation delenda est, baby.