Peter Morici: Realigning U.S. monetary policy for a truly global currency

The U.S. dollar is widely held around the world, but U.S. monetary policy doesn’t reflect that reality.

The Federal Reserve’s principal tools — adjusting short-term interest rates and quantitative easing — for accomplishing 2% inflation and low unemployment are radically out of sync with a global economy that relies on the dollar.

It’s high time U.S. monetary policy be realigned to reflect the reality of managing the global currency.

Since the financial crisis, inflation has become unhinged from Fed policy. Annual movements in the consumer price index, less food and energy, have largely fluctuated between 1% and 2% whether unemployment exceeded 10%, the Fed set short rates near zero and bought long-term Treasuries and mortgage-backed securities, or unemployment fell below 4%, the Fed raised short rates and ran down its balance sheet.

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