William M. Isaac

William M. Isaac, a former chairman of the FDIC, is senior managing director and global head of financial institutions at FTI Consulting. Richard M. Kovacevich is the retired chairman and CEO of Wells Fargo.

The Federal Reserve acknowledged slow worldwide economic growth and volatile financial markets at last month’s meeting of the Federal Open Market Committee. This is really not news but a continuation, albeit somewhat more pronounced, of what has been the case for over a year. Analysts’ assessments late last year about a strengthening economy are now looking incorrect, as the current trend raises deepening questions about whether the recovery will continue. The recovery has benefited mainly the wealthy while producing slow jobs growth and meager income for middle- and lower-income Americans.

There will always be considerable handwringing and second-guessing with each Fed move or lack thereof. That said the Fed should not delay putting in place a long-term plan that diminishes its outsized influence and allows the financial markets to work without undue interference from the central bank.

Much of the Fed’s problem is tied directly to its obsession with achieving an elusive goal of 2% inflation. That goal is unlikely to be achieved any time soon because the world’s economy is exceptionally sluggish with excess capacity nearly everywhere.

Ironically, low inflation has actually been a good thing for the U.S. economy.
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