Submitted by Taps Coogan on the 15th of November 2019 to The Sounding Line.

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Prospective Fed Board Nominee Judy Shelton recently spoke with CNBC’s Rick Santelli about the arbitrary nature of the Fed’s 2% inflation target and her belief that negative rates have failed to stimulate economic growth in the Eurozone.

 

Some excerpts from Judy Shelton:

“We’ve heard before about an ample reserves environment, but I now get the sense that $1.5 trillion, which is seven or eight times more than is required, there is only $200 billion of required reserves, that has somehow become a required level… I worry that this whole relationship between the banks being pressured to have such high excess reserves… is turning them away from efficient, productive financial intermediation and into utilities of the federal government. I think people will find there are other institutions that will make loans because banks are too busy hiring compliance officers instead of more loan officers.”

“There are so many indices for evaluating inflation that right away (talking about a 2% target) is confusing. Of course, for me, a dependable dollar wouldn’t lose value at all. Instead, we have this regimented, built in, 2% obsolescence. I would rather, and I think Paul Volcker has expressed this as well, not have 2% (inflation)… It makes life infinitely more complicated for people who actually have to use money… Some of these capital gains that you have to pay, when they are not indexed to the rate of inflation, it makes a big difference. I am leery that the Fed now talks about systematical inflation. If they ever do hit their target, it sounds like they are willing to go above that amount for a non-determined period of time… It’s a very interesting intellectual challenge to discuss what is the right rate of inflation. I guess I prefer zero.”

“We are hearing more voices (from Europe) saying that ‘I think we’ve bottomed out’ on reducing on interest rates to stimulate economic growth… I will never believe that truly productive economic activity is totally contingent on getting ever and ever lower rates on the cost of capital. I think that pro-growth economic initiatives such as reducing the regulatory burden or having a better tax environment for businesses to prosper, those are vastly more important than just trying to carry it all out through monetary policy which, in the end…, effects currencies more than economic goals.

There is more to the discussion, so enjoy the full video above.

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