The Tightwad Fed

In January 2012, the U.S. Federal Reserve announced a 2% PCE price level “goal” in these words:

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates and enhancing the Committee’s ability to promote maximum employment in the face of significant economic disturbances.

Let’s see how the PCE price level is doing more than three years later.
The Fed is not on track to meet its goal anytime soon. And that’s putting it mildly.

Wiser Words Were Never Spoken

An attempt to control the rates for call loans by the establishment
of an arbitrary limit at a low level, without the
ability to modify the causes above enumerated, which operate
to increase rates, would be distinctly hazardous, for
the reason that up to the point where the arbitrary rate
would limit the supply of new money, speculation and expansion
might proceed unchecked and the natural elements
of correction or regulation would not obtain. In
other words, high rates act as a deterrent to over-speculation
and undue expansion of credit. On the other hand,
should the supply of money available at a fixed maximum
rate become exhausted, liquidation might suddenly be
forced, because the demands for additional accommodation
for the consummation of commitments already made could
not be met. The effect of such liquidation would be to
embarrass not only investors and dealers in securities, but
frequently might affect dealers and merchants in commodities
as well.

Federal Reserve Bulletin, April, 1920

“Over-speculation and undue expansion of credit” is the only thing holding up the present-day stock bubble in the United States. Graph below:
Since 1991, there has been less and less average stock market wealth per average dollar of margin debt on the New York Stock Exchange.