Maintaining the purchasing power of the dollar is critical to a strong U.S. economy and to the economic well-being of middle-class American families.
The Fed’s centennial anniversary, reached last month, marks an appropriate time for a constructive and bipartisan review of America’s central bank’s performance over its first century and the proper role for the Fed in the future.
History proves that a sound and stable dollar is the best foundation for robust economic growth. Absent stability, price inflation steals from the pocketbooks of American families, punishes savers and increases uncertainty.
This weakens business investment, job creation and real income growth for families, especially for those working to climb the economic ladder.
Even if consumer price inflation remains tame, asset-price inflation can create unsustainable bubbles that devastate the American and global economy when they burst.
On the flip side, deflation can be equally destructive, leading to debt defaults, bankruptcies and financial meltdowns.
Unfortunately, the purchasing power of the U.S. dollar over time has been anything but stable. A dollar in 1967 is equivalent to barely 14 cents today.
The past decade of generally accommodative monetary policy has been accompanied by a significant decline in the international value of the dollar. This decline has added to the cost of international commodities such as oil and gasoline.
Europe’s financial crisis and global uncertainty helped to restore some of the value of America’s currency. Being the best-looking horse in the global glue factory is a dubious honor, though.
There are significant and thoughtful disagreements among policy experts and free-market leaders about whether the Fed should maintain its current policies or begin aggressively reining in its easy-money policies to avoid stoking new asset bubbles or planting the seeds of future inflation.
There are concerns about the dual mandate that Congress placed on the Fed in 1977; picking winners and losers in the credit markets, which jeopardizes the political independence of the institution; the make-up of the Federal Open Market Committee; and the transparency of the Fed.
Perhaps the best way forward is to step back and take a longer view of the institution. We believe the moment is right for an objective, comprehensive survey of the Fed’s existing mandate and policy framework.
That’s why we have introduced the Centennial Monetary Commission Act, which would establish an independent, balanced, bipartisan panel to collect evidence and make recommendations to Congress.
Such an evaluation is long overdue. The Fed’s original mission was to provide an elastic currency within the context of the gold standard to combat seasonal financial issues. A hundred years later, its mission has obviously become much broader.