The Federal Reserve appears poised to resume purchases of Treasury bonds. Speculation is mounting that the central bank will increase its inflation target from 2% to at least 4% to bolster the labor market. In 1968, Milton Friedman showed that any gain in employment will last only as long as the public underestimates the inflation rate. Allan Meltzer, a professor of political economy at Carnegie Mellon University, argues that the Fed appears determined to continue making mistakes that hinder the economic recovery.

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