Reiterating the Federal Reserve Board's inflation-fighting stance, four Fed bank presidents recently testified before Congress in support of a House resolution that calls for zero inflation.
Sponsored by Rep. Stephen Neal (D-N.C.), House Joint Resolution 409 would charge the Fed with eliminating inflation within five years and maintaining price stability thereafter. While differing on exactly how low inflation should be and on the possible negative effects of a zero-inflation plan, the Fed presidents gave full support to the House measure.
E. Gerald Corrigan
President
Federal Reserve Bank of New York
Inflation inevitably undermines economic and financial discipline,
it can arbitrarily redistribute income, it surely undercuts international
competitiveness and it can induce wholly unnecessary and costly elements
of volatility in interest rates and exchange rates. Moreover, so long
as an inflationary environment persists, these cuts are ongoing and
cumulative. Looked at in this light, the costs of gradually winding
down inflation—especially if we are able to maintain the discipline
to keep the inflation down—look far less foreboding. Nevertheless,
both minimizing the transition costs and maximizing the prospects of
sustaining a non-inflationary environment make it all the more clear
to me that those complementary efforts aimed at the savings gap, the
investment rate and productivity growth are very important indeed.
W. Lee Hoskins
President
Federal Reserve Bank of Cleveland
If House Joint Resolution 409 is enacted and the Federal Reserve
commits to an explicit plan for price stability, the transition period
will soon be over, and any costs that arise because of this policy change
will be outweighed by the benefits. These benefits will be large and permanent,
and will far outweigh the costs of getting there. House Joint Resolution
409, if enacted, would be a milestone in economic policy legislation because
it would shift the focus of monetary policy away from short-term fine-tuning
to the long term, where it belongs. It would enforce accountability for
the one vital objective that the Federal Reserve can achieve. It would
officially sanction those sometimes unpopular short-run policy actions
that most certainly are in our nation's long-term interest. It would make
clear that the Federal Reserve cannot achieve maximum output and employment
without achieving price stability. I fully support House Joint Resolution
409.
Robert T. Parry
President
Federal Reserve Bank of San Francisco
I enthusiastically support House Joint Resolution 409. Eliminating
inflation would be the most significant contribution that the Federal
Reserve could make to the attainment of the highest possible standards
of living in the United States and around the world. Resolution 409 can
assist the Federal Reserve in attaining this goal by stating that we should
design policies to eliminate inflation within a prescribed deadline. Once
this goal is achieved, I believe that monetary policy should be geared
toward maintaining a stable price level, so that businesses and individuals
do not need to be concerned about long-run inflation in making their economic
decisions.
Robert P. Black
President
Federal Reserve Bank of Richmond
I strongly support Resolution 409 and its objective of achieving
price stability in five years. The costs of the persistent inflation in
this country are substantial. Without a significant change in the framework
in which monetary policy decisions are made, inflation is likely to continue
to be a serious problem in the years ahead, and it is entirely possible
that the rate of inflation could reaccelerate. Resolution 409 goes to
the heart of the policy problem, which stems to a large extent from the
Federal Reserve's overly broad current mandate. Price stability can and
should be the overriding objective of monetary policy. Achieving and maintaining
price stability is the best contribution monetary policy can make to the
successful performance of the economy over the long run.
