At Bloomberg Opinion, I urge Moore to reconsider two of his ideas about monetary policy, especially if he gets confirmed to the Federal Reserve Board. One of those ideas concerns using commodity prices as a guide to policy, with falling prices a sign that interest rates should decline and rising prices a sign they should increase.
If consumers in China and India increase their purchases of gold jewelry, it will raise the price of gold. Under a commodity-price rule, their shift in buying habits would require deflation in the U.S. That can’t make sense.
The rule would also, perhaps more importantly, put monetary policy at the mercy of supply shifts. Widespread strikes by copper miners in Latin America would raise commodity prices and militate in favor of tightening.
If anything, I go on to argue, Fed policy is already too responsive to trends in commodity prices driven by supply shifts.