February 12, 2008

Monetary policy is at a crossroads. The law is clear. Under the Humphrey-Hawkins legislation the Fed has a dual mandate. It must insure economic growth as well as price stability. The current economic conditions suggest that the Fed has a tough choice. At issue is whether monetary policy should be used to attempt to stimulate the economy and avert a possible subprime economic recession or if the Fed should simply focus on maintaining price stability. Recent headlines in the financial press suggest that mounting inflation concerns weigh on the Fed’s next move.

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