Volcker does not understand the monetary policy of today…

Well, not many do either barring those who seem to be making the policy.

WSJ Blog has these comments by Paul Volcker over the monetary policy at today. He does not really get it:

Paul Volcker, the man who broke the back of inflation in the opening years of the 1980s, is a man at odds with what Federal Reserve policy making has become. A 2% inflation target? Long-term, detailed forecasts of activity? Pledges to keep rates very low well into the future? For Mr. Volcker, who led the Fed from 1979 to 1987, these are all overly precise policy choices that promise more than any central bank can deliver. What’s worse, the policies that have come to define modern Fed policy can even be counterproductive, making central bank goals harder to achieve.

Mr. Volcker, 87, weighed in on monetary policy while participating at a conference held at the Federal Reserve Bank of Philadelphia on Thursday. The former central banker occupies a hallowed place in the institution’s history, having helmed the effort that decisively killed the high inflation that boiled out of the 1970s, albeit by way of creating a sharp economic downturn. His blunt-force approach to central bank policy making stands in sharp relief to the increasingly complex web of communications and tools that have come to define the Ben Bernanke and Janet Yellen eras of central bank leadership.

Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, “Do we want prices to double every generation?”Mr. Volcker said that “any price index is an approximation of reality,” and it would be better if the Fed was “fuzzy” about what level of prices it wished to achieve. What’s more important, he said, is that “you want a situation where people generally expect prices will be stable,” and the Fed appears to have that right now.

That means that in any given month, small gains, or even modest declines, aren’t that big a deal as long as they’re weighed against the general trend. But with the current inflation target, “you have a feeling now that we are committing suicide” if any inflation gauge turns negative, however briefly, Mr. Volcker said.

Mr. Volcker also said the Fed’s decision to provide long-term forecasts for key economic variables is simply folly.

 He also said how much central bankers talk these days…

There is little doubt Mr Volcker will be surprised given the hype and attention central bankers create for themselves. Given how little they can do vs how much they promise to do is a huge gap by itself. But then this is how the game has been for many years…

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