The political attack on Ben Bernanke's QE2 continues. House leader Mike Pence and Sen. Bob Corker submitted legislation to end the Fed's dual mandate of balancing employment and inflation. Instead, they want to rewrite the late-'70s Humphrey-Hawkins act to mandate an inflation target for the Fed, dropping the employment part.
This new inflation target is aimed at QE2, and the Fed's attempt to lower the unemployment rate by inflating the money supply and the price level. It's a good idea, though I would prefer going straight to a King Dollar stabilization approach referenced to gold in order to capture inflationary expectations, and thereby guide the Fed's interest-rate and money-supply operations.
But an inflation target does clarify the central bank's role as a guardian of price stability, and moves it away from the all-powerful central-planning disease.
Meanwhile, in the short term, the threat of dollar decline has been temporarily mitigated by the Irish and European debt-contagion flare-up, which has caused a run into dollars and out of euros. Dollar-gold has fallen accordingly.
However, in the QE2 cease-and-desist category, there is no deflation for the manufacturing sector. Factory output increased 0.5 percent in October and is running 6.1 percent ahead of last year. Along with a strong retail sales number, it looks like the economy's growth rate is getting a bit better, and certainly not worse.
The producer price report for business wholesale prices shows no deflation. In October it increased 0.4 percent, and is running 4.3 percent above year-ago. Intermediate and crude prices also are strong.
Today's CPI report showed a two-tenths of 1 percent increase in October, and a 2.4 percent annual gain over the past three months. The Fed will undoubtedly point to the scant 1.2 percent year-on-year gain, but that's not deflation. The CRB futures index is still 7 percent above year-ago. Gold is 17 percent ahead of last year.
And Treasury bonds in the 10-to-30-year zone are actually higher in yield than they were late last summer when Bernanke first mentioned QE2. Not surprisingly, if the goal of the central bank is to inflate, long-term bond rates also will inflate.
A political uproar over Fed pump-priming has moved Bernanke to meet with Senate Banking Committee folks in order to re-sell the policies that were so sorely unsold in the first place. So far we don't know what transpired in that closed-door meeting. But it looks to me like the Democrats are the easy-money party and the Republicans are the harder-money partisans.
This article first appeared on Kudlow's Money Politic$ Blog.