What's your top economic priority? Strong growth? Low interest rates? A rising stock market? Low unemployment? Booming real estate?
All worthy goals, agrees Edward W. Kelley Jr., but they pale when compared to the No. 1 economic priority of them all: beating inflation.Inflation!? Who's worried about inflation? The big issue of the '70s has been the big bore of the '80s, right? Well, maybe, but Kelley doesn't think so, and what he thinks matters a great deal.
That's because Kelley is a member of the board of governors of the Federal Reserve Board in Washington, D.C., the very-powerful, very-independent (Kelley assures) body that determines United States monetary policy. As goes monetary policy, it can be argued, so goes the nation's economy.
Kelley was in town Thursday as a guest of the Salt Lake City Branch of the Federal Reserve Bank of San Francisco, which hosted him and a group of high level executives at an Alta Club luncheon where Kelley was asked to talk about what was on his mind, individually, and the Fed's mind, collectively.
Despite what appears to be a downward trend in inflation following a summer in which the dreaded "i-word" once again was being heard across the land, Kelley is not complacent. Yes, sustained, long-term growth is very much in the Fed's game plan, said Kelley, but not at the expense of "price stability" - another term for low or even zero (he insists it's possible) inflation.
Not everyone agrees with him. "What's wrong with a little inflation?" they ask. "Lots" is his reply.
Inflation, Kelley said, guarantees inefficiencies in markets and encourages short-term thinking - the kind of thinking that has helped make the United States uncompetitive overseas. It forces people to protect their purchasing power "in strange ways."
"Inflation causes us to overconsume and un-derinvest. It emphasizes the quick buck. It causes people to invest in Chinese vases or impressionist art when our roads and bridges are crumbling."
The fact is, said Kelley, if American business didn't have to worry about inflation, it would do a better job across the board. "Inflation is an inhibitor of growth and a creator of recessions. A no-inflation policy is a pro-growth policy."
Kelley made it clear that the Fed walks a very narrow road in which it probably pleases no one. It doesn't please the "hard money" advocates who say there is no excuse for any inflation and that the Fed always "chickens out" when it comes to making the hard decisions that would put paid to rising prices once and for all.
And it certainly doesn't please the soft money side who asks the (hopefully rhetorical) question "Are those Fed guys crazy? Are they trying to kill the expansion? Don't they know a little inflation is not a bad thing?"
Somewhere in the valley between those extremist factions, said Kelley, the Fed must march to a rational policy that will realize its two fundamental goals of maintaining sustained economic growth while keeping inflation reined in.
It's not easy, he said. Kelley characterized inflation as "imbedded and starting to creep" in the United States. And with the world economies becoming more tightly linked every year, what happens here will inevitably happen there.
How serious is the Fed about taming inflation? So serious, he said, that the body is willing to risk recession in the effort - whatever that might mean to political careers in Washington.
Is it possible to have growth without inflation? Kelley doesn't hesitate: "Yes," he affirms. "But only over the long haul. That's what matters, the long haul."
Does the Fed have the will to stick to its guns in the face of political expediency? Yes, he says, but concedes that, independent or not, the governors cannot act as all powerful despots.
"We read the newspapers," he said. The differences between the Fed and the administration in the White House are exaggerated by the press, he said, but "shades of differences" obviously exist. The Fed listens to the political winds, he indicated, but in the end it acts on the mandate it has set itself: supply the country with stable prices.