In 2003 Bernanke said that interest rates and the money supply were unreliable indicators of the stance of monetary policy, and that ultimately only NGDP growth and inflation were reliable. I’ve frequently criticized Bernanke for seeming to walk away from this definition of easy money, as during recent years he has occasionally called monetary policy “extraordinarily accommodative.”
Johnleemk sent me a very interesting BusinessInsider post from Joe Weisenthal, which discussed a recent Bernanke interview:
At one point he was asked what Milton Friedman would have said about the Fed’s actions these days. His answer was excellent. He pointed out that Friedman advocated QE for Japan during its struggle against deflation and weak growth. He also recalled one of Friedman’s most important lessons, that low interest rates are not the same as loose policy.
Bernanke said specifically, when citing the lesson of Milton Friedman: “We didn’t allow the fact that interest rates were very low to fool us into thinking that monetary policy was accommodative enough.”
The Fed seems to be getting a bit more market monetarist each day. That’s very good news.
Perhaps they’ll eventually realize that there are no absolute standards of ‘easy’ and ‘tight’ money, and that the terms can only be defined relative to the central bank’s policy objective. That means money is still tight.