Thomas Palley has a new Op-Ed for The Globalist titled The U.S. Federal Reserve and Shared Prosperity in which he argues against ““pre-emptive inflation tightening” that sacrifices wage growth and full employment versus “testing the waters” that gives wage growth and full employment a chance.” He asks the Fed to abandon its 2% inflation target with many compelling reasons. The largely neoliberal economics profession has maintained that if inflation is low and stable, full-employment will take care of itself. Palley argues against this ideology.
The article is a short version of a full paper titled The Federal Reserve and Shared Prosperity: A Guide to the Policy Issues and Institutional Challenges.
The Federal Reserve is a hugely powerful institution whose policies ramify with enormous effect throughout economy. In the wake of the Great Recession, monetary policy focused on quantitative easing. Now, there is talk of normalizing monetary policy and interest rates. That conversation is important, but it is also too narrow and keeps policy locked into a failed status quo. There is need for a larger conversation regarding the entire framework for monetary policy and how central banks can contribute to shared prosperity. It is doubtful the US can achieve shared prosperity without the policy cooperation of the Fed. That makes understanding the Federal Reserve, the policy issues and institutional challenges, of critical importance.