Epstein on the Mission of the Federal Reserve

Janet Yellen's Challenge
Richard A. Epstein
Defining Ideas (Hoover Institution)
November 26, 2013

Janet Yellen is set to become the first woman to head the Federal Reserve. The Senate Banking Committee approved her nomination by a 14 to 8 vote, with two Republicans in tow. As chair, Yellen is poised to follow the Federal Reserve’s 1977 “dual mandate of maximum employment and stable prices.” In nominating Yellen, President Obama endorsed a “sound monetary policy to make sure that we keep inflation in check . . . [while] increasing employment and creating jobs.” Yellen in turn said her mission was “to promote maximum employment, stable prices, and a strong and stable financial system.” The global markets seemed to be buoyed by the news.

But dissident Republicans, led by Marco Rubio, have criticized her as “a lead architect of monetary policies that threaten the short and long-term prospects of strong economic growth and job creation.” Unfortunately, Rubio’s opposition to Yellen did not reject the dual mandate. It only attacked the current Fed policy of keeping interest rates close to zero by purchasing on average about $85 billion in bonds in order to stimulate the economy through Quantitative Easing (QE). Stiffer medicine is needed.

Faculty: 
Richard A. Epstein