Published February 1, 1990 | February 1990 issue
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
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 inflationespecially if we are able to maintain the discipline to keep the inflation downlook 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
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
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
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.