On Targeting the Price of Gold

Thanks to President ’s Trump’s picks for prospective Fed Board nominees, the subject of gold price targeting (or a gold “price rule”) is getting attention once again.The idea, which got a lot of attention back in the 1980s,after Arthur Laffer  and other supply-siders, includingAlan Reynolds, first began promoting it, is that the Fed could mimic a gold standard, keeping inflation in check and otherwise making the dollar “sound,” by employing open-market operations to stabilize the price of gold. The topic has come up again because three of Trump’s prospective nominees have at one time or another suggested that the U.S. should revive the gold standard, and two of them, Herman Cain and Stephen Moore,are full-fledged supply-siders. Although Cain and Moore are no longer in the running, Judy Shelton, the third gold standard fan, is still in the race (along withChris Waller of the St. Louis Fed), and she also has strong supply-side leanings.These factsprompted Representative Jennifer Wexton (D-Va.) to ask Jerome   Powell, following his July 10th testimony, whether the U.S. should “go back to the gold standard.” In response Powell, whether because he had a Laffer-style gold price-rule in mind or for some other reason, interpreted the question as one asking whether the Fed should “stabilize the dollar price of gold.” That, he said, wouldn’t be a good idea:There have been plenty of times in fairly recent history where the price of gold has sent signals that wo...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs