“The Fed played a part in igniting the conflagration it’s now trying to smother,” says the subtitle of University of Georgia economics professor George Selgin’s 2007 article which has proved to be only too prescient, and is currently posted on Café Hayek. Selgin argues:
In hindsight, it’s easy to say that the Fed blundered. But avoiding similar blunders in the future is another matter. The truth is that the Fed, as presently constituted, faces an impossible task: It can’t tell whether its targeted rates are “natural” (and therefore sustainable) except in retrospect, when it’s too late; and it will always be tempted to engage in fine-tuning, both because the Humphrey-Hawkins Act of 1978 calls for it to do so, and because a myopic and inadequately informed public rewards Fed bureaucrats for “doing something” even when they ought to stand pat.
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