The Fed Returns to Price Stability?

Today’s Wall Street Journal features an op-ed piece by Rep. Paul D. Ryan of Wisconsin (“Blame Congress for Inflation”). Ryan is referring to the Full Employment & Balanced Growth Act that Congress passed and President Carter signed on October 27, 1978. The Act, also known as Humphrey Hawkins, mandates the Federal Reserve take on the dual role of balancing price stability and maximum employment.

Rep. Ryan intends to introduce the Price Stability Act of 2008 that would rewrite the Act to return the Fed’s focus to its original purpose – price stability. I wrote about the horoscope of the Act in a post about the Fed last year, stating the only thing that would grow from the 1978 Act is consumer debt and benefits to the “ruling class.” Paul Volcker became Fed Chairman the following year, ignoring the dual mandate in order to tame inflation. Volcker was smart enough to realize you cannot have a sound economy (and therefore maximum employment), unless you have price stability. Unfortunately, Greenspan and Bernanke chose to ignore the price stability side in favor of building bubbles, concerned with deflation’s effect on growth. (There’s nothing in the Act that talks about deflation being a problem!)

The reasons Rep. Ryan cites in favor of rewriting the Act are ones very familiar to Wall Street Weather readers: stable prices to keep inflation in check, a real strong dollar policy, and encouraging people to save. Price stability prevents interest rates from being jerked all over the spectrum, and the ensuing anxiety it creates for households and Main Street businesses to make long-term plans.

As Rep. Ryan writes: “There is no sign that Congress will change its tune on fiscal affairs – but passing the Price Stability Act is a chance at a bipartisan commitment to sound money. By refocusing the Federal Reserve’s legal mandate, Congress can strengthen the economy and do so without incurring any cost to the budget or increasing the deficit.”

I have already written that the transit of Pluto in Capricorn will bring major transformation to the purpose of the Federal Reserve. The Full Employment & Balanced Growth Act will experience its first Saturn return on August 27, 2008. A Saturn return occurs about every 28.5 years of an individual or entity’s life. This can be a time of testing and learning lessons. Saturn in Virgo is conjoined with the Moon in the Act’s horoscope. It is time for government legislation (Saturn) to restructure the Act to benefit the American people (Moon).

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