As posted on the Federal Reserve Bank of Chicago website, in
1977, Congress amended The Federal Reserve Act, stating the monetary policy
objectives of the Federal Reserve as:
"The Board of Governors of the Federal Reserve System
and the Federal Open Market Committee shall maintain long run growth of the
monetary and credit aggregates commensurate with the economy's long run
potential to increase production, so as to promote effectively the goals of
maximum employment, stable prices and moderate long-term interest rates."
Fast forward to 2013, and the Fed has explicitly linked the
timing of future interest rate increases to the rate of unemployment, and more
recently, has expressed concern about the effects that early increases to
interest rates could have on the Federal Government’s budget deficit targets. I’m
concerned that the Fed isn’t concerned about price inflation.
Before the Fed started truly intervening in the financial economy
in late 2008, their balance sheet and by extent the amount of “money” in the
economy was around $800 billion, at the end of 2012 after four years of
quantitative easing and special lending programs the Fed’s balance sheet was
close to $3 trillion. Of all that new money, $1.5 trillion are bank reserves
just sitting.
My finance background has exposed me to the idea the money
does not like to sit still for very long. When the financial economy shifts
from de-leveraging to investing, that money is going to be put in motion, and
when it is, upward price-pressure will be exerted on the economy.
Inflation is not yet a concern, but I think that by the time
it is, the horse would have already left the barn and closing the door would be
fruitless pursuit.
