Monetary Policy at the National Review: Kudlow Calls for a Well-Defined Price Rule
Consider the latest from Lawrence Kudlow on monetary policy:
I still can’t forgive the central bank for decimating and deflating the bullish stock market economy five years ago, a move that temporarily ended the great productivity surge of the Internet revolution.
After all, the fact that the employment-to-population ratio was over 64% was no indication of a strong labor market. Just look at the fact that gold prices were near $250 an ounce – so said Kudlow and his crowd. But the new and improved Kudlow is not calling for tight money even though he thinks an employment-to-population ratio less than 63% is wonderful:
Now, some of my supply-side friends take issue with my optimistic view on inflation. They believe the recent run-up in gold prices to over $500 an ounce signals excess money creation and much more inflation ahead. Therefore, some argue, the central bank must keep tightening and raising its target rate for at least another year. But I believe this is a 1970s view — one that abstracts from the Internet Google revolution and the record productivity surge, and also ignores the global spread of capitalism, which has taken hold in the post-Reagan years and has increased the demand for scarce commodities across the board … This does not mean that gold is irrelevant as a monetary signal; but it does suggest that the Fed is on the right track with what appears to be a newly created bond-price-rule approach to policy. In other words, the central bank seems to be using the bond market as its leading real-world indicator … For years, conservative economists have argued for a well-defined price rule.
These passages are from someone who has argued in the past for a commodity price-rule.