Milton Friedman on Monetary policy and the Federal Reserve
However, there are two slips between the lip and the cup. First, so far this is all promise, not performance. Second, improved operating procedures can be used to inflate as well as to restrain inflation. Will the Fed’s excellent anti-inflation sentiments survive climbing unemployment in Election Year 1980?
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. “This” is the Fed’s announced change of procedure and its promise of slower monetary growth.
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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/two-slips-between-lip-and-cup-election-year-1980
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He also said
If the Fed does change its procedures and does slow monetary growth, the recession will be resumed—or a new recession will get under way—in the first or second quarter of 1980. The bright side of that coin is that steady and gradual reduction in monetary growth would end inflation and lay the groundwork for healthy, noninflationary economic growth.
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. A forecast made in October 1979; the NBER dates the next recession from January to July 1980.
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 30903Checked against the sourceRead the originalHowever, those of us who have long favored such a change have repeatedly licked our wounds when we mistakenly interpreted earlier Fed statements as portending a change in operating procedures. I hope that this time will be different—but remain skeptical until performance matches pronouncements.
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. “Such a change” is the one he and others had pressed on the Fed for more than a decade: controlling monetary growth through the monetary base, or bank reserves, rather than the Federal funds rate.
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 30903Checked against the sourceRead the originalI then attributed the divergence of promise from performance to misunderstanding. The men who run the Fed, I wrote, have “taken the behavior of interest rates rather than the quantity of money as their guide—and this mistake has led them far astray from their intended path.”
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. “Then” is 1969: he is recalling his own 1969 Newsweek column, and the quoted words are from it. The next sentence of this column says “That explanation is not valid today.”
The Inflationary FedColumn, 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. 36327Checked against the sourceRead the original
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