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Balancing Inflation and Growth Part 10 of 13

There was a time, back when I was an outside observer of the Federal Reserve, when commodity future option trading the Fed practiced what some have dubbed opportunistic disinflation. Beginning in the mid-1980s, the FOMC recognized that while recessions sometimes occur, they could not be anticipated with any precision and that by the time the data revealed a recession, it was too late to do much about it, given the impact lags of monetary policy. The FOMC also recognized that the trend rate of inflation generally fell by about a percentage point or more following a recession. Put it all together and you get opportunistic disinflation, or the idea that if recession comes, make the best of it by bringing down the inflation rate.

This was a period of persistent disinflationand, I might add, a period during which the U.S. economy experienced only two short and mild recessions, a total of 16 months over almost 25 years. Over this same period, the inflation rate declined inexorably, reaching a point where the FOMC had to deal with the threat of deflation in 200304. It was also the period when the Fed made the largest gains in its policy credibility and commodity trading education.

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Balancing Inflation and Growth Part 12 of 13

As a result, trade in services is one of the most rapidly growing components of global trade. Thus, even the available supply of architects or petroleum engineers or software designers or medical technicians or lawyers or commodity trading broker must increasingly be considered in the context of global rather than domestic demand.

The point is that, at present, we simply do not have the ability to adequately account for the impact globalization has on the gearing commodity trading account of our domestic economy. Absent that capacity, we cannot, in my opinion, confidently assume that slower U.S. economic growth will quell U.S. inflation and, more important, keep inflationary expectations anchored. Containing inflation is the purpose of the ship I crew for, and if a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient.

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Balancing Inflation and Growth Part 1 of 13

It is an honor to speak here in London to the Society of Business Economists at the suggestion of my much-admired friend, Charlie Bean at the Bank of England. Charlie is on the advisory board of the Dallas Feds Globalization and Monetary Policy Institute, and we are most grateful for his platform trading insight and, not unimportantly, his wit.

I am on my way to a conference in Paris to learn commodity trading, where I have been invited by the Banque de France to comment on a paper by another of our institutes esteemed advisors, Harvard professor Ken Rogoff. I hope my French hosts will forgive me for bringing up my favorite of all of Shakespeares histories this evening, Henry V, as I recall one of the more pleasant moments during my tenure on the Federal Open Market Committee. During our last meeting with Alan Greenspan as chairman, some of us took advantage of the moment to ham it up and work a farewell salute into our otherwise somber interventions. I chose to adapt Henrys speech to the troops at Agincourt. Affecting my best Kenneth Branagh imitation, I mangled the words of the Bard: We few, we happy few, we band of bankers, and so on, concluding with the observation that other economists now abedit was morning when we metshall think themselves accursed they were not here, and hold their policy prescriptions cheap while any speaks that served in Alan Greenspans days.

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