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Milton Friedman on Monetary policy and the Federal Reserve

The Fed’s targets for monetary growth have become a laughingstock, as it has become clear that any relation between the targets and actual monetary growth is purely coincidental.

Context. From a Newsweek column of October 1979 on the change in Federal Reserve operating procedures that Chairman Paul Volcker announced on Saturday, October 6, 1979.

Has the Fed Changed Course?
Column, 1979, Newsweek (October 1979); reprinted in the Congressional Record, House, November 2, 1979, pp. 30902 to 30903, introduced by Representative Henry S. Reuss of Wisconsin, chairman of the House Banking Committee, together with Friedman’s letter to him of October 26, 1979, which encloses “a copy of a Newsweek column which I wrote commenting on Chairman Volcker’s statement of October 6.” The reprint gives no issue date; the column describes the week after October 6, 1979, and the letter enclosing it is dated October 26, so it ran in between, Congressional Record, November 2, 1979, pp. 30902 to 30903
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Milton Friedman, “Has the Fed Changed Course?” (Newsweek (October 1979); reprinted in the Congressional Record, House, November 2, 1979, pp. 30902 to 30903, introduced by Representative Henry S. Reuss of Wisconsin, chairman of the House Banking Committee, together with Friedman’s letter to him of October 26, 1979, which encloses “a copy of a Newsweek column which I wrote commenting on Chairman Volcker’s statement of October 6.” The reprint gives no issue date; the column describes the week after October 6, 1979, and the letter enclosing it is dated October 26, so it ran in between, 1979), Congressional Record, November 2, 1979, pp. 30902 to 30903. https://miltonfriedman.org/quotes/fed-money-growth-targets-a-laughingstock-1979

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He also said

  1. Targets should be expressed in terms of dollar levels of monetary aggregates rather than, or in addition to, growth rates. In 1975, Congress required the Fed for the first time to specify targets a year in advance. However, the Fed has evaded the intended discipline by stating targets in terms of growth rates applied to a shifting level of actual monetary totals. This device buried past mistakes and enabled the Fed to start fresh each quarter.

    Context. From a 1980 Newsweek column arguing that the Federal Reserve could control the quantity of money if it changed its operating procedures, written months after the Fed’s October 1979 announcement that it would aim at the quantity of money rather than interest rates.

    Improving Monetary Policy
    Column, 1980, Newsweek, July 28, 1980; reprinted in the Congressional Record, Extensions of Remarks, July 28, 1980, p. 20026, introduced by Representative Robert Dornan of California, who gives the column as appearing in the Newsweek issue “dated July 28, 1980”, Congressional Record, July 28, 1980, p. 20026
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  2. Instead of simply requiring the Federal Reserve to report its “projections” or “targets” for monetary growth, let the Congress require the Fed to achieve specified rates of monetary growth (or specified levels of the quantity of money) within specified ranges of tolerance. That would combine responsibility and power. It would also enable the ordinary citizen to know whom to hold accountable for inflation.

    Context. From a Newsweek column of October 1977, when inflation, having fallen below 5 percent in 1976, was rising again and money growth had returned to its 1972 pace.

    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
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  3. The rates of monetary growth specified by chairman Burns are too high. Yet, even so, actual monetary growth has been substantially higher.

    Context. From a 1973 Newsweek column comparing the Federal Reserve’s stated commitment to restrain inflation, under chairman Arthur Burns, with the actual growth of the money supply after the Fed said in January 1970 that it would give priority to the monetary aggregates.

    The Inflationary Fed
    Column, 1973, Newsweek, August 27, 1973; reprinted in the Congressional Record, Extensions of Remarks, November 7, 1973, p. 36327, introduced by Representative Robert Huber of Michigan as “Mr. Milton Friedman’s article that appeared in Newsweek of August 27, 1973”, Congressional Record, November 7, 1973, p. 36327
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