April 28, 2024

A number of analysts have expressed a variety of opinions regarding Fed monetary policy. While most have a view as to what should be done and how the Fed should act, the lack of consensus has some analysts describing the current monetary environment as a conundrum. Yet few offer a parsimonious and coherent explanation as to what monetary actions should be taken going forward. Knowing how we got to the current state of affairs helps develop such a monetary program. The past may offer a guide. The Fed’s inflation track record during the four decades that preceded Mr. Powell’s tenure show that the Fed was able to deliver on the price stability objective as defined by the 2% inflation target. The Volker-Reagan policy mix fits the bill of what Mundell called the optimal policy mix, it tamed inflation while delivering a resurgent economy. A policy mix that moved the US economy towards the dual mandate. Too bad that we have forgotten the Mundell optimal policy mix recipe. All of this reminds us of the Lyrics of MacArthur Park I don't think that I can take it 'Cause it took so long to bake it And I'll never have that recipe again, oh no

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