This is the Cato Daily Podcast for Friday, September 2nd,

2022. I'm Caleb Brown.

The Federal Reserve's dual mandate of focusing on both inflation

and employment gives the Central Bank enormous wiggle room

when it comes to policy and it allows them to aim for targets well beyond the

mandate. Thomas Hogan with the American Institute for Economic Research

argues that the Federal Reserve has engaged

in something of a shell game

when it comes to setting goals and sticking to them.

You would argue in part that the reason we have high inflation is the Federal Reserve has

taken its eye off the ball. What does that mean?

Well, like you said, they have a dual mandate of stable prices and full employment.

And so that's already a bit of a problem that it gives them some leeway that it's not clear

what they're really trying to achieve.

Economists have been talking for years about how the Fed should really be following some kind of monetary

policy rule where they would have a predictable policy so that the public would understand what they're trying to do, but also

so that we would have a single responsible goal for them.

So something like the Taylor rule is commonly talked about because the Taylor rule dictates what the Fed should do with interest rates

based on a trade-off between stable prices and unemployment, right?

And so there you have the two dual mandates combined into a single

rule where we can tell whether the Fed is actually doing its job and following that

rule responsibly. So if you don't have something like a rule that's going to tell them what to do, then they are able to use their discretion and kind of do whatever they want and have no real responsibility because if they err with inflation they say oh well we were just

...