Can The Fed Successfully Manage Financial Stability Regulation And Sound Money Price Stability At The Same Time?


We asked our panel:

Can The Fed Successfully Manage Financial Stability Regulation And Sound Money Price Stability At The Same Time?


NO 7

The Kudlow Caucus Breakdown

Stefan AbramsManaging Partner, Bryden-Abrams Investment Management
Of course, achieving and maintaining sound money price stability depends first and foremost on long term control of money supply growth, which the Fed has been doing quite well, particularly over the past 4-5 months as it confronts the bigger than anticipated credit/liquidity crisis. Maintaining the stability of the financial system does not always involve massive injections of funds. Standby credit facilities serve this purpose as well. But even when major liquidity injections become necessary, they can be targeted and the surplus funds can be sterilized or withdrawn before they result in a rise of inflationary expectations and inflation itself. Strong competition from low wage emerging economies helps contain inflationary pressures and gives the Fed more room/time to maneuver.

Joe Battipaglia
Market Strategist, Stifel Nicolaus
Financial stability will require more than regulations. It may require intervention regardless of whether or not price stability exists. One or the other would be sacrificed as the resent behavior of the Fed demonstrates.

Jared Bernstein
Senior Economist, Economic Policy Institute
That is, theoretically 'yes,' but practically, 'no'. The problem is that the Fed tends to have a market bias such that they have proven to be unable to differentiate normal speculation and temporary distortions from large, destabilizing bubbles. Under Greenspan, the policy was explicit: we neither spot nor deflate bubbles. Under Bernanke, that could change--he's a more adept student of such market failures. But that is yet to be seen.

Jerry BowyerChief Economist, Benchmark Financial Network
“No man can be a judge in a case involving himself” James Madison, Federalist Papers.

The Fed’s regulator role is a conflict of interest with their role as monetary authority. Bad Fed policy creates bubbles and then busts. When the busts occur, the regulators are called upon to assign blame. They have to choose whether they themselves or the regulated banks are to blame for the crisis.

Vince FarrellScotsman Capital Management
A man can't serve that many demanding masters. The Fed needs to focus on sound money and the financial market regulations belong to the Treasury Department. The two will at times be in conflict and that is good. But they need to be seperate.

Jim LaCampPortfolio Manager, Portfolio Focus, RBC Wealth Management
Co-Host, Opening Bell Radio Show, Biz Radio Network
Let them try to get their primary focus right first. I had a hard time with this one, because if we are talking about Fannie and Freddie, I would rather the Fed regulate them than have Congress in charge, they'd be the lesser of two evils, but answering the question as asked, I vote no.

Art LafferFmr. Reagan Economic Advisor
Chief Investment Officer, Laffer Investments
Yes, they can. In fact, it’s the essence that these two goals are not conflicting, but complimentary in nature.

Financial stability can never be achieved without sound money and good regulation.

Donald L. Luskin Chief Investment Officer, Trend Macrolytics LLC
Apparently not, judging by the evidence so far. No surprise -- the Fed can’t even juggle one ball, so why should we think they can juggle two?

Steve MooreSr. Economics Writer, The Wall Street Journal Editorial Board
Yes it can and should. What it can't manage is trying to stimulate the economy with monetary growth while it is trying to fight inflation.

James Pethokoukis
Sr. Writer, U.S. News & World Report (Money & Business)
Few of us do more than one thing well, and more and more I have come to think the Fed should focus on reducing the "inflation tax" -- price stability.

Robert Reich
Former Labor Secretary
Professor of Public Policy, UC Berkeley

Gary Shilling
A. Gary Shilling & Co. President
Yes, we tend to think of the Fed in monetary policy terms, but it also has an excellent staff of regulators that the institutions it regulates listen to very carefully.