By now, it is rather obvious that the Fed is determined to promote growth at the risk of having a runaway inflation.

Is it a sound policy?

I am never impressed by this obsession with growth. For example, Wall street expects the listed companies to grow continuously, ignoring the fact that there exists business cycle. Have you studied the “Constant Growth Model”? It is still a part of orthodox, formal financial education curriculum.

In order to fullfill this expectation, GE has to manipulate their accounting in order to smooth out their earning growth to satisfy the Wall Street analysts.

In making a choice between Growth Promotion and Inflation Control, it also highlights whom the Government and the Fed are serving.

Inflation control is in a way a self-imposed constraint of the Government and the Fed such that they will not impose tax implicitly on the public at large by printing money. Usually a low inflation rate is preferred because it allows the monetary base to grow with GDP without eroding the purchasing power of existing currency holder significantly.

However if the policy makers focus on keeping the momentum of growth of G.D.P., it is not clear who will ultimately reap the benefit out of this at the end. For example, employers, over the years, have mastered the art of boosting company profit at the expense of the worker by the means of layoff, or, the mere threat of doing so, to suppress the wage growth. General public does not get to share the fruit of the GDP growth.

Policy markers used to justify their pro-Growth decisions by saying that “A bigger pie feeds more people”. But as modern technology has dramatically improved the productivity, a growth in G.D.P does not necessarily translate to increase of payroll positions.

I think I can see quite clearly who are going to lose out in next few years as a result of this series of rate-cut by the Fed — the public.