My former Federal Reserve colleague Kevin Warsh has penned an article in the Wall Street Journal that assails the central bank for its "deeply flawed" management of the economy. I disagree with many elements of his argument, but I want to focus on one: that the Fed doesn’t know how to achieve its inflation objective.
Warsh suggests that the below-target inflation of the past several years has come as a surprise to the Fed -- a belief that, judging from comments I have received by email and on Twitter, many people share. Yet as he should know from his five years as a Fed governor, this impression is completely false. The evolution of both consumer prices and unemployment over the past five years is entirely consistent with what the central bank's staff predicted, and (more arguably) consistent with what officials intended.