The Nominal Target as a Visible Horizon

Even though the Fed resumed a fairly normal growth pattern after the Great Recession, central bankers never really explained the loss of the earlier trajectory - nor have they sought to remedy the lost output. While it appears as though a nominal target is presently observed, by no means has this been stated as such. If only a (temporary?) steady level were matched by a steady vision, on the part of the Fed. Do they see the recent trajectory as an actual horizon to plan by, or are they preparing for further drawbacks?

A level nominal target would be the most reliable monetary indicator available, in part because it expresses a commitment to the intersection of time use aggregates and resource utilization capacity. In other words, a nominal target serves as a reminder what can be done, in spite of negative feedback to the contrary. Why, then, is the Fed unwilling to express the meaning of its current trajectory in understandable terms to the public? No one really knows, which is why a "quiet" target level isn't completely reassuring. As a result, people want to know: will further Fed discretion make matters more uncertain at home?

What's more, the reluctance of the Fed to monetarily back its own citizens, could have effects beyond the borders of the U.S. David Wessel in "How The Rising Dollar Could Trigger the Next Global Crisis", expresses concern that the U.S. is tightening, even as other nations attempt to loosen monetary conditions and overcome the recent effects of disinflation. Oddly, this has become a recent concern on the part of the BIS, which provided source material for Wessel's article.

David Beckworth also points out in a related post link, how the BIS only recently argued that the Fed's monetary policy stance was too loose. Herein lies the problem: when interest rate targeting is used to react to changes in asset and commodity pricing, problems ensue. By focusing on everything but the people who are part and parcel of economic life, central bankers forget that domestic demand requires top priority for monetary stability. If governments were not so caught up in their own definitions of production and consumption, they would discover that citizens still have the capacity to innovate and prosper.

Do policy makers in the U.S. still believe in the ability of citizens to make positive contributions, well into the future? Or will citizens get short shrift because they cannot always purchase the "appropriate" government defined consumer basket? The nominal target level, which highlights the intersection between time use and resources, is the horizon that matters. It represents the degree of future commitment which people could - given the chance - plan for in the here and now.

The nominal target level provides monetary compensation for time use in relation to economic circumstance. If productive economic activity is underway - by whatever means - so long as the activity is appropriately measured (locally and nationally) it should be covered and accounted for. As a result, a nominal target level is not just an appropriate measure of activity, but also an indicator of wealth potential. According to Richard Feynman (HT Ryan Decker):

It isn't the stuff, but the power to make the stuff, that is important. 

Have nations given up on that inherent dynamism? While some still hope for continued progress, too many others are fighting over the stuff increasingly misbegotten remains of the day. Feynman reasoned that the lack of understanding, could be on the part of those with insufficient science background. If only! As Ryan Decker noted, scientists - just like everyone else, can be prone to falling into resource ruts.

Only consider that some central bankers are willing to further tighten, in spite of disinflation from the "positive" supply shock of lowered oil prices. If they truly believed this latest round of price declines to be positive, then why would they be reluctant to provide the greater spending capacity such circumstance could normally offer?

To be sure, some individuals have negative long term outlooks because of eventual "peak" oil (in spite of present supply gains). But that isn't now, and policy makers are mostly reacting to current - and recent - events in play. Otherwise, broad monetary tightening would not remain the stuck gear that refuses to budge. To some degree, populations are utilizing less oil, because they do not have sufficient economic access to be able to do so. Why is that not a flashing warning signal?

Many central bankers - for all intents and purposes - do not have a clear horizon in their minds for economic potential. They are reluctant to publicly commit to even short term targets, excepting the blunt tool of inflation. Who will convince them - when others also remain unconvinced - as to the future of human potential? Readers know where I stand on this issue.