Macro Musings with David Beckworth Skanda Amarnath on the Future of the Federal Reserve and its Framework
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May 5, 2025 
Skanda Amarnath, the executive director of Employ America, dives into the Federal Reserve's intricate monetary framework. He discusses the implications of Humphrey's Executor and the Fed's ongoing Framework Review. The conversation highlights the case for nominal GDP targeting as a fresh approach to inflation management. Skanda emphasizes the vital need for the Fed's independence amidst political pressures, and explores the importance of clear communication in navigating economic challenges. A fascinating look at the future of monetary policy!
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Humphrey's Executor & Fed Independence
- The Humphrey's Executor ruling protects Fed independence by restricting presidential removal of Fed officials to for cause only.
- Overturning this could allow presidents to politicize the Fed by firing governors and chairs at will, threatening its apolitical function.
Supply Shocks Challenge Fed Policy
- Supply shocks, like tariffs, can cause inflation and weak activity, posing a dilemma for the Fed.
- The Fed’s past struggles show the challenge of distinguishing demand versus supply shocks in real time.
Use Nominal Spending as Guide
- Use nominal consumer spending and labor income growth as key indicators to guide monetary policy.
- These measures help distinguish between demand-driven and supply-driven inflation pressures.