The Federal Preserve

‘in a pickle’

What is the aim of the Federal Reserve?

‘The Federal Reserve’s Dual Mandate. The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment.’

Stable prices/Inflation

Inflation is the increase in the prices of goods and services over time.

‘Federal Reserve policymakers evaluate changes in inflation by monitoring several different price indexes. A price index measures changes in the price of a group of goods and services. The Fed considers several price indexes because different indexes track different products and services, and because indexes are calculated differently. Therefore, various indexes can send diverse signals about inflation.’

So essentially the fed monitors average long run inflation, digging into sub categories to identify temporary unique data points and marries these with ‘core inflation’ (food/energy) data to assess inflation trends.

The ethos/mandate of a technology company

One can postulate that either through unintended consequences or innately by their very construction as follows:-

Global Technology Dual Mandate. The expansionary goals are to disrupt, delineate and challenge existing models of business in a manner that increases efficiency, lowers cost whilst utilising less resource.

Essentially a game of optimisation.

It follows that the intrinsic focus of global technology proliferation is potentially wholly antithetical to the aims and ambitions of central banks.

The irrevocable change that has been experienced in all sectors and value chains within the world economy due to tech has allowed companies hitherto unknown access to many markets — leading to consequently a more streamlined global landscape for goods and services. This is a deflationary effect as consumers gorge on free delivery of goods (Amazon) and free provision of services (media/Netflix et al).

Issues and ramifications

The Fed is the de facto central bank of the world. As such its monetary policy effects are global; the diminishing impact being achieved via its actions are very likely to seriously damage its credit standing as a nation and have wide ranging implications not least on the dollar and its reserve status.

Technological advancement and its occupation at almost supranational status is a deflationary force resulting in the loss of many traditional jobs. A structural change in monetary policy framework is required; one that is not reliant on inflation to manage debt loads. Until then one can make the case that current monetary policy is diametrically at odds with the forces of innovation.

Who will abandon their mandate first? Place your bets…

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