In a classic Friday news dump, yesterday the Federal Reserve issued a press release. It may signal the return of sanity to monetary policy. The Fed announced it was withdrawing from participation in the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). A pdf is below, but here’s the text:
January 17, 2025
Federal Reserve Board announces it has withdrawn from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS)
For release at 1:30 p.m. EST
The Federal Reserve Board on Friday announced it has withdrawn from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS).
While the Board has appreciated the engagement with the NGFS and its members, the work of the NGFS has increasingly broadened in scope, covering a wider range of issues that are outside of the Board’s statutory mandate.
For media inquiries, please email media@frb.gov or call 202-452-2955.
Fed Chair Jerome Powell should hang his head in shame for ever even thinking about joining NGFS.
Jerome Powell
The Humphrey-Hawkins Full Employment Act
Under the Humphrey-Hawkins Full Employment Act (1978) the Fed is required to pursue five goals:
- full employment
- growth in production
- price stability
- balance of trade and
- a balanced government budget.
Notice something missing? The word “green” or any mention of environmental targets.
Economists quickly noted that the Fed had no control over government spending or taxes, meaning the fifth goal was impossible. Monetary policy mainly affects the balance of trade via its impact on exchange rates, meaning the fourth goal is difficult. Most important, meeting even the remaining three goals is sometimes impossible. Today, the law is usually interpreted as mandating high employment and low inflation.
The Paul Volcker Era at the Fed
Paul A. Volcker
Former Fed chair Paul Volcker (1979 – 1987) proved the impossibility decisively when he raised interest rates sharply to fight the inflation of the 1970s. The result: inflation fell sharply but the economy entered a serious, albeit short, recession.
(click for larger image)
(click for larger image)
Unemployment peaked at 10.8% in November and December, 1982. But inflation fell from 18.6% (annual rate, January, 1980) to 2.5% (August, 1982). Paul Volcker remains one of history’s great Fed chairs.
