Inflation hawks are those who oppose the Fed easing monetary policy in an attempt to stimulate the economy at the risk of increasing inflation. Jeffrey Lacker, President of the Richmond Fed, recently discussed current economic conditions with Virginia Business. Regarding the recent decision by the FOMC to keep interest rates low through 2013 President Lacker was quoted saying “I think low interest rates right now are warranted. But I was hesitant about committing implicitly to a particular date on the calendar.” The 2011 FOMC voting members include three dissenters to recent policy changes including Minneapolis Fed President Narayana Kocherlakota who explained his dissent as not seeing the need for more accommodative policy.
James Bullard, President of the St. Louis Fed, was quoted in the Wall Street Journal as saying reduced inflation expectations were something, “[t]hat is making me a little bit worried.” and Chicago Fed President Charles Evans, “wants the Fed to promise to keep short-term interest rates near zero until unemployment drops below 7.5% or unless inflation rises to near 3%.” Chairman Bernanke cited “significant downside risk” to the economy for the near- to medium-term.
The “Hawks v. Doves” argument is now taking on a bigger role, as Representative Barney Frank has pushed to try and end some of the dissent on the FOMC votes by trying to remove the Fed Presidents from the committee.
Questions you might consider:
- Do you think the Fed’s credibility is harmed by dissenting votes? Does their message appear mixed, or do you think that the open debate within the FOMC is a good thing for policy? Cite some research, or opinions of other economists to support your opinion.
- Do you believe the Hawks or the Doves are correct? Cite their reasoning for deciding to ease (or not ease) monetary conditions further. Do you think the inability for Congress to pass further stimulus has thwarted the Fed’s efforts to stimulate the economy? Cite some research, or opinions of other economists to support your opinion.
- Do you believe that Barney Frank is correct in what he is trying to do to make the FOMC more aligned with itself? Do you believe this would add more accountability to the FOMC? Or do you believe the Fed Presidents play an important role in forming policy? Cite some research, or opinions of other economists to support your opinion.