Do you think the Fed should be given a clearer legislative mandate concerning macroeconomic goals? If...

Do you think the Fed should be given a clearer legislative mandate concerning macroeconomic goals? If so, what should it be?

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Expert Solution

People are best served by neutral monetary policy, whereby the central bank provides no more and no less than the quantity of cash that the economy requires to maintain going. Given the United States ' current centrally managed fiat money structure, Congress can significantly enhance monetary policy by replacing the so-called dual mandate of the Federal Reserve. The Fed should be given the single objective by Congress to achieve monetary neutrality by stabilizing general economic expenditure. Targeting total expenditure would offer the Fed the greatest opportunity to achieve monetary neutrality because that framework needs the central bank to react to changes in demand for cash.

This new framework would be superior to inflation targeting because it would allow the price level to rise and fall as productivity changes.

Congress can greatly improve monetary policy by replacing the Federal Reserve’s current legislative mandate to promote stable prices and maximum employment.

Rahul Sunny answered 2 months ago

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