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Why should the Federal Reserve’s mandate exclude employment?

Phalguni Soni

Bullard pays homage to the “guru” of the Fed’s transparency efforts (Part 2 of 2)

(Continued from Part 1)

James Bullard’s speech at the Homer Jones Memorial Lecture

Dr. James Bullard, president and chief executive officer of the St. Louis Fed recently made the opening remarks at the 25th Edition of the Homer Jones Memorial Lecture, an annual event. The Lecture was held at the Federal Reserve Bank of St. Louis on April 2, 2014. The Lecture is an annual event in memory of prominent economist, Homer Jones.

Homer Jones is sometimes described as “Milton Friedman’s teacher” because he taught the latter as an undergraduate at Rutgers—James Bullard mentioned in his speech. He has also influenced Friedman’s decision to pursue Economics, rather than Mathematics or Statistics.

James Bullard also gave credit to Homer Jones’ unwavering commitment to independent research. “Those of us in the Federal Reserve System who believe that the ability to question and re-examine conventional wisdom leads to better policy outcomes owe a great debt to Homer Jones. The Fed’s ability to absorb and be open to multiple viewpoints helps prevent groupthink and leads to superior monetary policy and ultimately to better macroeconomic performance,” said Dr. Bullard.

Dr. Bullard then introduced the speaker at this year’s lecture, Robert E. Lucas, Jr., Nobel Laureate (1995) and the John Dewey Distinguished Service Professor in Economics at the University of Chicago. He said that Professor Lucas’ contributions included macroeconomics including business cycles, asset pricing, monetary economics, the welfare cost of business cycles and the determinants of economic growth. Professor Lucas was awarded the Nobel Prize in Economics “… for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy.” These are theories that impact all types of investments, be it fixed income (BND), equity (OEF), real estate (ITB), or alternative (GLD), not only in developed markets, but in emerging markets (VWO) as well.

The Fed mandate should exclude employment

At a press conference before the lecture, Professor Lucas said that he was not in favor of the Fed targeting employment as one of its mandates. “I’m not a fan of the dual mandate… I think we should just ignore it. Inflation is something the Fed is directly responsible for and knows how to deal with.”

Read The Dallas Fed’s Richard Fisher shares key forward guidance to know about the Fed’s new forward guidance policies.

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