For Orderly Dissolution Of The Fed Before It Does Us Even More Harm
By JIM POWELL
Word is that the Federal Reserve is getting new suggestions to again consider targeting interest rates.
Whatever the merits of the suggestions, they highlight an amazing fact: The Fed was established 97 years ago, and Fed officials were given considerable power over the economy as if they knew what they were doing, but they didn’t. They’re still winging it today.
The Fed failed its first big test in 1920 when the end of World War I was followed by the sharpest depression on record. Wholesale prices plunged more than 50%, the economy contracted by almost 24%, and unemployment doubled to 11%. This was the kind of crisis the Fed was supposed to prevent.
Benjamin Strong, who helped establish the Fed, believed this deflation was an inevitable consequence of wartime inflation. “No one could have stopped it,” he remarked.