The future of monetary policy

The following is the press release of a new initiative to examine the future of monetary policy, based on the core sentiment that growth is not enough. “Dynamic, stable and sustainable” is the goal, for the economy… and monetary policy. Full employment is featured as a key – and largely ignored – objective of central banks.

Joseph Stiglitz Leads Progressive Discussion on Future of the Fed
Published: April 27, 2011

The New America Foundation, in partnership with the Roosevelt Institute, hosted a roundtable discussion on the future of the Federal Reserve. Nobel Laureate Joseph Stiglitz and CEO Andrew Rich discussed how the financial crisis has irrevocably changed Washington’s approach to monetary policy and called on progressives to actively engage in this dialogue.

“What we’ve learned is that the actions some thought would promote growth actually led to this historic financial crisis, the effects of which will be long-lasting,” said Stiglitz, who just last week was named by Time magazine as one of the 100 most influential people in the world. “Clearly the Fed’s future role needs to extend beyond simply keeping inflation low.”

The roundtable was held just hours before Federal Reserve Chairman Ben Bernanke held his first ever press conference. The event featured three panels that provided insight into a progressive vision of the Federal Reserve, the challenges the it faces, and the paths it could take. Roosevelt Fellow Mike Konczal organized the event and moderated the first panel.

Senior Fellows Robert Johnson and Jeff Madrick also participated on two of the panels. Video of the panels will be posted on NewAmerica.net as soon as the footage is available.

“Despite recent job growth, uncertainty surrounding our economic future remains pervasive,” said Roosevelt Institute CEO Rich in introducing the event. “The Federal Reserve will remain largely responsible for overseeing a dynamic, stable, and sustainable economy, but it is yet to be seen if it is up for the task‹and exactly what that task should be.”

Other featured speakers included Thomas Palley, New America Foundation; Joseph Gagnon, Peterson Institute for International Economics; Jane D’Arista, Political Economy Research Institute (PERI), University of Massachusetts Amherst; Matthew Yglesias, Center for American Progress; and Perry Mehrling, Columbia University.

The first panel talked about the current challenges surrounding the Federal Reserve‹from full employment to financial reform. Moderated by Konczal, it included Gagnon; Yglesias; Dennis Kelleher, Better Markets; and Joerg Bibow, Skidmore College and the Levy Institute.

“One lesson of the financial crisis is how important the Federal Reserve is to the economy and how much liberals and progressives need to engage with it,” said Konczal. “Conservatives are organizing against it, and I believe it is time progressives and liberals start to play offense.”

The second panel looked at the Federal Reserve over the 20th century and how it has adapted to deal with different political and economic realities. It included Madrick; Mehlring; Tim Canova, Chapman University; and Elizabeth Renuart, Albany School of Law. They discussed how the Fed has changed in the past and will change in the future to respond to new circumstances. The consensus from the panel was that this is entirely appropriate and it is essential that liberals get involved in shaping it.

“The Fed cannot do its job properly without full employment as one of its key objectives,” said Madrick. “In truth, it has neglected this role now for 30 years.”

The final panel looked to potential issues that the Federal Reserve will face down the line‹from financial regulation as a macroeconomic issue to capital controls to inflation targeting to the battle for full employment, and the debates surrounding these topics. Moderated by Johnson, the panel included Palley; D¹Arista; and Gerald Epstein, PERI.

“As we move forward it is vital for the Federal Reserve to regain the trust of the American people by clearly revealing how it will use its balance sheet, and the associated fiscal risks that will be incurred by the American taxpayers, in the event of another financial crisis and bailout,” said Johnson. “The new communications strategy on which the Fed is embarking today may be a step in the right direction.”

“The Federal Reserve needs to become more intellectually pluralistic to avoid a repeat of the ‘group think’ that contributed to its pre-crisis blindness,” said Palley. “its inflation target should be set to attain the maximum sustainable rate of employment. And the Fed must also apply quantitative balance sheet controls to the financial sector (including shadow banks) to prevent future financial excess.”

Today’s discussion is part of a two-day, two-city event that New America Foundation is co-hosting with the Roosevelt Institute. The second event will be held at the New America Foundation on May 9th in Washington, D.C.

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