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Beat the Fed

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Re: Beat the Fed

#2

Post by nicolasehrhardt »

"Fed’s goal: get the U.S. inflation rate to 2%": This is partially true, since the Fed's goal is also to maximize employment[1]. So really, they should add employment rates in these different categories as well. Which makes the job even harder.

In fact, balancing the two was thought to be a very hard job in theory, almost impossible. And that's why the EU central bank mission _is_ to only stabilize inflation and let each country focus on employment. (it's less and less true because of pressure from EU countries such as France and Italy).

[1] http://www.federalreserve.gov/aboutthefed/mission.htm

Re: Beat the Fed

#3

Post by hammock »

At first glance, had no idea what I was supposed to do or how it worked. At second glance, it seems like you're just setting price inflation on a number of components, trying to get the weighted average to be 2%. Wildly overhyped "game"?

Re: Beat the Fed

#4

Post by pachydermic »

nicolasehrhardt wrote: post #2

"Fed’s goal: get the U.S. inflation rate to 2%": This is partially true, since the Fed's goal is also to maximize employment[1]. So really, they should add employment rates in these different categories as well. Which makes the job even harder. In fact, balancing the two was thought to be a very hard job in theory, almost impossible. And that's why the EU central bank mission _is_ to only stabilize inflation and let…

Interesting fact: adding the unemployment part of the dual mandate came after the recession of '73-'75 which saw unemployment hit 9%. Originally, the Fed's only mandate was to keep prices stable.

[1] https://www.chicagofed.org/publications/speeches/our-dual-ma...

[2] https://en.wikipedia.org/wiki/1973%E2%80%9375_recession

Re: Beat the Fed

#5

Post by jvm »

nicolasehrhardt wrote: post #2

"Fed’s goal: get the U.S. inflation rate to 2%": This is partially true, since the Fed's goal is also to maximize employment[1]. So really, they should add employment rates in these different categories as well. Which makes the job even harder. In fact, balancing the two was thought to be a very hard job in theory, almost impossible. And that's why the EU central bank mission _is_ to only stabilize inflation and let…

They have clearly adopted other goals as well, apparently popping bubbles or some such, otherwise with 10 year TIPS << 2% there would be no reason to raise rates.

Re: Beat the Fed

#8

Post by hugh4 »

wcummings wrote: post #7
akuma73 wrote: post #6

Perhaps I am economically naive, but why does there need to be any inflation? Why isn't 0 a target?

To encourage spending

Inflation of zero is just as good for encouraging spending as small positive inflation -- the rate you'll get by low-risk investing will always beat inflation by a bit.

But the moment inflation dips below zero it really starts discouraging spending.

So I suspect it's about having a margin for error. Target zero and it will spend a lot of time negative, target mildly positive and it will spend most of its time mildly positive.

Re: Beat the Fed

#9

Post by mikeash »

wcummings wrote: post #7
akuma73 wrote: post #6

Perhaps I am economically naive, but why does there need to be any inflation? Why isn't 0 a target?

To encourage spending

It also allows wages and prices to fall when necessary, without making the raw numbers decrease, which people are usually reluctant to do.
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