Fed Task Force Tackles Spending Targets in Inflation Review

The Federal Reserve has named a task force to review its monetary policy, focusing on inflation. The group is led by Harvard economist Greg Mankiw, Nobel laureate Thomas Sargent, and William White, former chief economist at the Bank for International Settlements. Their charge is broad enough to cover targeting total spending rather than prices.

The Fed's approach has been criticized for making officials answer a difficult question before acting: whether inflation comes from supply or demand. In 2021, the Fed misread rising prices as transitory and later attributed it to persistent high inflation rates. Targeting spending sidesteps this issue by focusing on nominal income growth.

The task force has a unique opportunity to push the Fed to think outside its box. Mankiw, Sargent, and White are well-positioned to press for spending targets, having spent careers arguing for rules over discretion and criticizing narrow inflation targeting. The panel's mandate is to examine 'first principles' and weigh the full range of ideas.