[Addendum: via email Frank notes the connection to Bryan Caplan's nice post comparing Rothbard to mainstream on inflation. In short, the Fed doesn't control inflation, it creates inflation.]

That's Gerry O'Driscoll in yesterday's Opinion Journal (article here, HT: Richard Reinsch).

With a deft insider hand and historical perspective, Gerry deconstructs the Fed's use of core inflation and grimly highlights the dangers of lagging indicators.

The Federal Reserve now confronts a serious economic problem with limited scope for action. Asset prices, especially those linked to housing, are falling. Financial institutions are capital-constrained and risk-averse, and are not lending. Economic growth is flagging. The classic response would be first to reflate the banking system and then the economy. But current inflation is rising. Excess money creation will translate quickly into even higher inflation.

Yet Fed Chairman Ben Bernanke has in recent days promised further interest-rate cuts and monetary largesse. San Francisco Fed President Janet Yellen promised the Fed will tighten later at the right moment -- easier said than done. Charles Plosser, Philadelphia Fed president, was closer to the mark when he recently said "once the public loses confidence in the Fed's commitment to price stability, it is very costly to the economy for the Fed to regain that confidence."

The Fed needs to return to its mandate of controlling inflation. The first step is for the Fed to shed an inflation measure that misleads itself, other policy makers, and the markets. We do not need a rerun of the 1970s. Once is enough.

Gerry's outlook is a bit dramatic, in my opinion (for effect probably). Still, the policy message is spot on. Every macroeconomics student should read this piece of commentary.