Tuesday, August 25, 2009

The Future of U.S. Monetary Policy

Stephen Roach is not pleased with Obama's nomination of Ben Bernanke as the next Fed chair. Despite this outcome, Roach is hopeful that this decision will create a national debate on what should be the objectives U.S. monetary policy going forward:
The Bernanke reappointment is a welcome chance for a broader debate over the conduct and role of US monetary policy. Mr Obama has made sweeping proposals that give the Fed broad new powers in managing systemic risks. I argued in the Financial Times 10 months ago that the Fed should not be granted these powers without greater accountability as required by a “financial stability mandate” – in effect, forcing the Fed to shape monetary policy with an aim towards avoiding asset bubbles and imbalances. Without a revamped policy mandate, it is conceivable that we could face another destabilising crisis.
I hate to sound like a broken record, but a nominal income targeting rule would go a long way in improving financial stability.

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