It is the Fed’s job to uphold the value of money, not debase it
- The repeated calls for inflation targeting by the current and previous Fed chairs illustrate the extent to which modern central bankers have forgotten that their primary duty is to keep control over sound money
There was a time when central bankers cared about money – when they remembered the mass inflation hysteria of the 1920s and the damage that it did to ordinary people’s livelihoods. Similarly in the 1970s and 1980s, when inflation soared. In Hong Kong in 1982, inflation was 11 per cent; in 1991, it was 11.2 per cent – and there was always an inkling that the figures were massaged downwards. I remember that my mortgage rate rose to nearly 20 per cent per annum.
Society adjusts to hyperinflation, as does a golfer with a bad swing. Companies regularly raise prices – and give pay rises. In fact, it is not too bad if you have a job and can save, especially if you can invest in assets or if inflation collapses, as it did from 1995.
Incredibly – due to the Asian financial crisis of 1997, inflation fell to minus 4 per cent in 1999 and since then it has persisted at around the 2-4 per cent level. The suspicions of data manipulation have remained – in all major economies. Does anyone out there think their costs rise by just 4 per cent per year?
Inflation is public enemy No 1 as it devalues the very money we rely on. But wait. Why is Powell saying he must push inflation up? Why have all Fed chairmen since Alan Greenspan, who is old enough to remember the 1920s inflation, called for inflation targeting?