In his op-ed, David Malpass raises some legitimate issues on the models and data employed by the Federal Reserve ("The Fed Needs Better Models," Oct. 27). But his suggestion that the Fed should target stability in the value of the dollar is unworkable and would conflict with aiding the small businesses, new workers and home buyers he seeks to help.
Say the Fed decides that the economy is weak and unemployment is high. It would normally be inclined to cut interest rates to alleviate conditions for workers and businesses. But doing so would cause the value of the dollar to depreciate, and the Fed, committed to a stable dollar, would not be able to provide relief in that situation. Similarly if inflation was high, the Fed couldn't tighten monetary policy, because doing so would increase the value of the stable dollar they want. In either the Fed is unable to take the best actions for the U.S. economy.
No wonder Milton Friedman called for the dollar to float in foreign currency markets, rather than be stable. Changes in the models and data that drive Fed policy are important to consider, but trying to fix the value of the dollar in currency markets while leaving the Fed with the independence to achieve growth and inflation stability in the U.S. simply isn't possible.
William Miles
Wichita State University
Wichita, Kan.
(END)