On the news that the Fed may react to the stumbling recovery with actual policy shifts, the monetary-policy-obsessed Matt Yglesias notes that it would be nice if the president's three nominees to the Fed Board of Directors could be confirmed in time to participate in the Fed's Aug. 10 decision-making meeting. (They were nominated by the Obama administration months after the vacancies were known, and only received hearings a few weeks ago -- four months after their nominations. They continue to languish in committee.)
This is, in essence, the Fed escaping accountability: Public influence on the central bank comes indirectly, through presidential appointees to the board, but if the president -- elected 18 months ago -- has only two of his six Fed appointees (Dan Tarullo and the renomination of Chairman Ben Bernanke) in place, that's not much responsiveness to the public's electorally expressed will. It's not good for policy-making or for the legitimacy of the Fed.
Here's another idea for better accountability at the Fed: Explicit inflation targets. While we charge the Federal Reserve bank with promoting "stable prices" -- managing inflation -- the Fed only has an "unofficial" inflation goal of about 2 percent, rather than a specific target. This both adds to the opacity around the Fed and preserves it from accountability -- there is no consequence if the Fed fails to achieve its inflation aims, as it is doing now, because there are no specific aims.
Bernanke is something of an expert on this topic, having written a book and a number of articles on how central bankers can use inflation targeting as a policy tool. Ironically, his concern in this article is that explicit targets will lead to both faster real growth and medium- and long-term inflation -- two things we need as growth slows and deflation becomes an increasing danger. Ultimately, Bernanke concludes that inflation targeting "has a number of advantages, including more transparent and coherent policy-making, increased accountability, and greater attention to long-run considerations in day-to-day policy debates and decisions." That sounds like the right prescription to me, but Bernanke adopted the habit of not implementing many of the policies he used to endorse.
-- Tim Fernholz
