At the Cato Institute Monetary Policy Conference, Part 5


Rep. Kevin P. Brady
Chairman, Joint Economic Committee

Gerald P. O’Driscoll Jr.
Senior Fellow, Cato Institute

R. David Ranson
President and Director of Research, Wainwright Economics

Quaint idea that savers should get a return on their money by the moderator, Judy Shelton.

Kevin Brady

Talks about punk GDP growth and employment.  If not now to re-examine the Fed, then when?  The Centennial Monetary Commission might find ways improve matters.

Gerald P. O’Driscoll Jr.

Can we get rid of the Fed?  Politically not possible in the short-run, but in the long run, it is possible.  Thus propose it now, and when the time is right, the knowledge will be there to execute the idea.

The Fed does what is best for the Fed, not necessarily what is best for the country.  There have been eras that had rules.

  • ’20s — modified gold standard
  • ’50s — era of balanced budgets, Fed never tested (DM: note that even Martin gave in to LBJ at the end)
  • early ’80s — Volcker made the rule — control the money supply
  • ’90s-’00s — modified Taylor rule

Argues that Fed should follow a rule.  Rules allow the Fed to have independence on a good basis.

How do we get for discussions to action?  More frequent meetings, with a greater focus on action.

R. David Ranson

Is monetary policy helping or hurting us?  “Last call at the bar”  Raising fed funds rates shift growth into the present, and lowers future growth.  Falling fed funds rates shift growth into the future, and lowers present growth.  Volatility of Fed policy is negatively correlated with growth.

Fed policy has gotten weaker over the last 50 years, as the economy has learned to anticipate it.

Compares QE with debt monetization — QE is more explicit and planned.

Easy monetary policy lowers employment, GDP growth, stock prices, raises gold, CPI, PPI


Q1 — which is more important to GDP growth, regulation or monetary policy?  Brady says both are important, and monetary policy adds to uncertainty.

Q2 — should the Fed try to manage interest rates? Ranson — they don’t do it well.

Q3 — shouldn’t monetary policy be governed by the Constitution? Brady: Don’t tinker with the Constitution, but hold your congressmen accountable.

Q4 — Selgin suggests Ranson’s work is just correlations.  We need the fed funds rate vs the natural rate to know whether policy is tight or loose.

Q5 — To Brady: Interest on Reserves? No real answer…