The Fed’s primary job ought to be keeping the economy
growing. Making money available to buy
inventory, build new factories, hire more workers, raise their pay, finance building
new aircraft, new cars and trucks, new ships, new railroad rolling stock. Part of this is keeping prices stable. If companies and people get the idea that the
dollar will be worth less tomorrow, they will buy stuff today, before the price
goes up. Resulting demand will raise
prices because the supply side isn’t big enough to supply everybody’s wants
today.
Unfortunately the Fed usually sees it’s job as to keep the
stock market speculators speculating.
They borrow money to buy stocks, running up the price of the stock. Then they sell. For this to work, the Fed has to make
borrowing money reasonable cheap. And
stock speculation does not grow companies or hire more workers. We don’t need it.
Better would be a Fed policy to keep prices stable, and
money for real economic purposes available.
If this means interest rates so high that stock speculation becomes a
loser, tough.