Price Stability, Economic Instability: The Fed’s Contradiction

The Fed insists that a stable price level is the mark of a healthy economy, but stability in the headline number tells us nothing about the money supply distortions happening underneath it. Chasing a two percent target still requires manipulating interest rates and credit creation, and it is precisely that manipulation, not the price index, which drives the boom-bust cycle and inflation.

‘The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

For most economists, the key to healthy economic fundamentals is price stability. Price stability is an economic condition where the general price level of goods remains relatively constant over time. It is held that a stable price level leads to the efficient use of the economy’s scarce resources. According to the former President of the Federal Reserve Bank of New York William J. McDonough,

Over the long run, price stability is the one sustainable contribution monetary policy can make to growth. This applies to all countries.