NOW you want more than 2% inflation?!?!?
Reading the Fed minutes can sometimes make me want to tear my hair out. During the long recovery from the Great Recession, the Fed frequently told us that we could not do more stimulus due to the danger of inflation exceeding 2%. The taper tantrum was caused by Fed hints that monetary tightening was on the horizon, motivated by a fear of higher inflation. In 2015, the Fed began raising interest rates, with the goal of preventing inflation from overshooting 2%.
And now, with unemployment down to 3.9%, we are suddenly told that the Fed would actually welcome above 2% inflation? This makes no sense at all.
It was also noted that a temporary period of inflation modestly above 2 percent would be consistent with the Committee’s symmetric inflation objective and could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective.
Just to be clear, it’s perfectly fine to argue that the Fed should overshoot their 2% inflation target right now. Thus a market monetarist might favor overshooting for “level targeting” reasons. There are good arguments on both sides of that question, but it’s certainly a defensible argument. However these MMs that favor overshooting were also favoring more monetary stimulus during the recovery from the Great Recession.
What’s not defensible is to have have opposed additional monetary stimulus during the recovery from the Great Recession, even as inflation was running well under 2%, and then now suddenly favor above 2% inflation.
Most business cycles are caused by procyclical monetary policy. A monetary policy that causes inflation to run below 2% during periods of high unemployment and above 2% during booms is procyclical, and hence bad. Why does the Fed have so much trouble understanding such a basic point? I don’t get it.
I can already anticipate commenters talking about whether money is too easy or too tight without reference to the monetary REGIME. That’s just stupid. Monetary policy is not about whether the fed funds rate should be raised or lowered at a given meeting, it’s about what sort of policy regime you have. The Fed still hasn’t figured out that a procyclical policy regime is destabilizing. It’s the primary cause of the business cycle.
PS. I have a blog post at a new AEI symposium on how the US can best compete with China.
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24. May 2018 at 08:05
I don’t know if I feel as strongly on this. The Fed should emphasize that they want 2% inflation over the medium-term. If inflation is temporarily higher than 2%, but is still expected to be 2% over the medium-term, then that’s fully consistent with their mandate. The goal should be that inflation’s deviations from targets would be uncorrelated with the cycle. The problem is when they only allow the deviations on a cyclical basis. Then I agree.
It would be no different in an NGDP regime. The Fed can target 5% NGDP growth over the next year, but they cannot control the realization of NGDP in the actually economy. Sometimes a little higher, sometimes a little lower. No problem. Cyclicality in NGDP, potentially a problem.
24. May 2018 at 08:28
John Hall, I think you’re missing the point. When the Fed talks about “2% and no more”, that’s tighter policy than “well, above 2% is okay”.
Following a tight policy during an anemic recovery while following a loose policy with unemployment quite low (as we throw workers out of the country) seems rather dangerous.
From reading this blog, I feel like the Fed’s job is a pretty delicate balancing act. The point is to prevent velocity feedback loops. Tip one way and people lose confidence and begin hoarding cash. Tip the other way and they begin spending with greater and greater abandon.
What does “in balance” mean? Well, the Fed defines it as 2% inflation Dr. Sumner defines it as stable NGDP growth.
Dr. Sumner’s chosen variable is probably better because people make spending decisions based on changes in income. If there’s 0% inflation, but 5% real growth, people will feel the 5% increase in incomes and spend accordingly.
Now (and I’m guessing here) we’ve gone from 1.5%-2% RGDP to 2%-2.5% RGDP. Inflation has gone from 1.5% to 2%. So people feel their nominal incomes increasing at an increasing rate (from 3.5% growth to 4.5% growth).
Given this situation, and hearing the Fed say “hey, we can even go higher, baby!” seems likely to upset the delicate balance, risking the opposite feedback loop then what happened in 2008.
I mean, I suppose inflation expectations are so anchored at 2% that the risk is small. But it seems like a lot of credibility to risk when things aren’t all that bad.
24. May 2018 at 08:32
Maybe they realized miss-allocation of human computational resources.
24. May 2018 at 08:37
The most likely way the next recession occurs is either with the Fed overshooting its target, and then withdrawing too abruptly and/or Trump causes a real shock that the Fed, since it does inflation targeting, decides to response to with tighter money. If these two things happen more or less simultaneously, we could have a fairly deep recession.
24. May 2018 at 09:04
Important post indeed. I don’t know whether the Fed , has really considered it , but :
Stock markets , are in a very delicate situation . after years ( 8 years approximately ) of breaking over and over historical records , markets are stuck recently. Many leading investors , suggest , that party is probably over.
Several reasons :
The trade war with china ( and Europe ) tension with North Korea , but above all :
Anticipation for hawkish policy ( raising more and more interest rates ) . Such anticipation for bubble to explode ,can cause serious crisis ( one should not forget :
historical records as mentioned, occurred during the subprime crisis , and above all :
thanks to it ( emphasizing : ” thanks ” ) ) .
As such , being afraid of huge avalanche , the fed may think, that it is better , to lower expectation ,even if bit higher inflation would be generated so (but that would cause much less harm finally ) .
Here one may observe the S&P 500 stuck recently ( every candle , represents one day ) :
https://www.barchart.com/stocks/quotes/$SPX/technical-chart?plot=CANDLE&volume=0&data=DO&density=M&pricesOn=1&asPctChange=0&logscale=0&sym=$SPX&grid=1&height=500&studyheight=100
Thanks
24. May 2018 at 09:07
Just shorter URL if it does cause any trouble :
https://goo.gl/EQf64U
24. May 2018 at 09:15
Just clarification to my comment above :
It is obvious of course , that rising interest rates , shall affect stock markets .For bonds ( and currency ) Vs. stocks , compete with each other typically. Higher interests, would favor bonds of course , and lower , stock markets obviously .
Thanks
24. May 2018 at 09:23
So apparently those “millenials” might never recover from the recession:
http://money.cnn.com/2018/05/22/news/economy/1980s-millennials-great-recession-study/index.html
Could this be a big driver of Trumpism in America and around the world?
24. May 2018 at 10:01
Its not confusing at all. The federal reserve was always uncomfortable with QE and zero rates. So they wouldn’t push on the gas pedal when those tools were fully in place in order to overshoot.
But they are comfortable hiking a little slower once FF are at 2% and allowing an overshoot.
I understand your arguments against overshooting now versus earlier. I also assume you agree with my logic.
24. May 2018 at 10:13
John, You said:
“The goal should be that inflation’s deviations from targets would be uncorrelated with the cycle.”
That would be a single mandate for inflation, which is illegal. They have a dual mandate.
Sean, That may be their thinking, but if so it’s a very stupid policy.
24. May 2018 at 10:15
Benny,
I recently posted a job position for an entry-level economist and was absolutely floored by the number of candidates who completed their degrees during the recession and then, facing a non-existent job market, simply never got their shot at a position that would fully utilize their abilities.
Just for example, I had one person who earned their Econ degree in 2009, lost their part-time professional job that same month when their company went bankrupt, and that person has been salmon fishing ever since. Thank god I got my own first “real” job in a safe sector a few months before the market tanked…
24. May 2018 at 10:34
It’s always good to call out hypocrisy but what is BEST? Overshooting inflation and catching up on all that lost NGDP Growth or forever lower NGDP Growth?
The micro-benefits of 5% NGDP Growth are greater variability of individual nominal wages, ones that are typically downwardly inflexible. The higher the nominal wage growth overall the greater the individual/micro variability. And the greater the productivity growth as more valued workers are bid away from existing firms without those left behind feeling too bad – even though stuck on flat nominal, falling real, wages.
24. May 2018 at 10:44
“I’d say that the preponderance of evidence still supports the notion that high unemployment depresses inflation, low unemployment fosters inflation.”
That’s a quote from this post by Paul Krugman:
https://www.nytimes.com/2018/05/06/opinion/unnatural-economics-wonkish.html?rref=collection%2Fcolumn%2Fpaul-krugman&action=click&contentCollection=opinion®ion=stream&module=stream_unit&version=latest&contentPlacement=3&pgtype=collection
I quote Krugman because that thinking seems to match other things the Fed says. They see the causality differently and literally can’t understand how it is that inflation will rise at a time of falling RGDP.
Please keep writing because it will make a great difference if you can ever convince them of your insights.
24. May 2018 at 14:05
Overshoot wouldn’t be such a potential problem if the Fed could credibly establish a very gradual tightening in response, i.e. . over years in some cases. But, given the schedule by which FOMC and BOG composition can change, the Fed typically tightens in response to above target inflation at rates that cause nominal shocks significant enough to cause recessions.
I think at least some on the FOMC did fear their own power with QE, with their worst fear being held responsible, first for high inflation, and then a double dip recession as remedy.
24. May 2018 at 15:09
James, What is “best” depends entirely on the regime. Tell me the monetary policy of the 2020s, and I’ll tell you what’s best in 2018 and 2019.
5% NGDP growth in 2000-07 didn’t do us much good when the Fed switched to inflation targeting after 2008, despite lower trend RGDP growth.
Bill, Good point.
Michael, They should be even more fearful now, as inflation is far more likely now than in 2012.
24. May 2018 at 15:49
Scott,
All else being equal, that’s true. But, I suspect, for what it’s worth, that the ZLB made at least some at the Fed think they didn’t have a measured way to inflate. Without explicitly being able to lower the Fed Funds rate, I suspect they feared that inflation expectations could get ahead of them.
Just imagine how you’d feel if you were in their shoes, but didn’t look to immediate market reactions for evidence of policy effectiveness. You’d feel you were relatively flying blind.
That, coupled with forecasting that consistently overestimated inflation are what seem like very plausible explanations for the Fed’s behavior.
And, this could go for many other central banks too. This could help explain why, apart from fusing monetary and fiscal policy, central banks will allow high inflation to go on for years. How many are willing to be blamed for a recession? Sometimes, it’s the politicians who won’t tolerate it, which could be one reason Rajan was out in India.
24. May 2018 at 16:58
Scott Sumner is right.
On the other hand the Fed has a new chairman. Should a Fed chairman consider himself absolutely bound by previous policies?
Besides that, there is an election coming up….
24. May 2018 at 17:19
@Lava
So apparently those “millenials” might never recover from the recession
Oh stop it please. “Millennials” and their appendages seem to be the whiniest generation of all. At least so far. I hope Post-Millennials will be better than this.
24. May 2018 at 19:38
Scott,
I read your blog post on China and was very impressed. I thought your explanation of what China needs to do to improve their economy was excellent.
The more I thought about it the more I see that this is likely why I favor Republicans instead of Democrats. I see Democrats as the the party of government control of the economy. The Republicans at least talk like this is not a good idea.
25. May 2018 at 07:26
Michael, You are assuming that I am smarter than Fed officials, which doesn’t seem very plausible.
Ben, Didn’t this new Fed chair privately argue (to Yellen) that her policies were too expansionary? Yes, he voted with Yellen, but reluctantly. So I don’t buy that explanation.
Bob, You didn’t notice that the GOP has been taken over by Trump? He’s a big government Republican.
25. May 2018 at 08:10
Scott,
I can’t comment on whether you’re smarter than Fed officials generally, but I’d say you’ve been smarter on monetary policy. And let’s not forget that not all of them are even economists.
25. May 2018 at 09:18
>Bob, You didn’t notice that the GOP has been taken over by
>Trump? He’s a big government Republican
Yes, but Hilary would have been a big big big government Democrat!!
25. May 2018 at 13:24
Bob,
Do you think we’d have trillion dollar deficits under Clinton? The pattern with recent Democratic presidents is that Republicans in Congress want some control over fiscal spending when Democrats are in the White House. Under Reagan, Bush 1 and 2, and Trump, however, deficits explode and most Republicans in Congress don’t care.
Also, Clinton and Obama both pushed hard to reduce deficits, and each were successful. They wanted deficit reduction.
25. May 2018 at 22:49
Scott,
Have you looked at the Australian property “bubble” hysteria recently? It seems like an extreme example of the difficulties of identifying bubbles and resistance to persistent evidence.
26. May 2018 at 05:23
BTW Scott Sumner has prevailed!
“The Money Illusion is a blog by economist, Scott Sumner, the director of the Program on Monetary Policy at the Mercatus Center. Sumner is famous for popularizing the idea of targeting the Nominal GDP, an idea which was later embraced by the Federal Reserve. The blog focuses primarily on monetary policy and its implications.”
From new list of top 100 blogs in link from Marginal Revolution
26. May 2018 at 06:44
Current TIPS breakevens are 2.1% CPI over the whole yield curve, prolly just about equal to the Fed’s own 2.0% PCE target. Finally, after 8 years, the Fed has achieved what it said it has been trying to all along. Doesn’t seem like the right time to join the hawks.
26. May 2018 at 13:00
Bob, I doubt it. The GOP enacts bigger budget increases under GOP Presidents like Bush and Trump than under Democratic Presidents like Obama. I’d expect Hillary to be more like Obama.
W. Peden, Yes, there’s a commenter named “Willy2” that’s been telling me that the Australian market is falling, and he’s been saying that for a number of years. If he keeps it up eventually he’ll be right!
Brian, I’ll never be a (perma) hawk or a (perma) dove. I’ll always favor stable monetary policy.
BTW, In this post I did not make any monetary policy recommendations, hawkish or otherwise.
26. May 2018 at 16:10
Michael said:
>Also, Clinton and Obama both pushed hard to reduce deficits, and >each were successful. They wanted deficit reduction.
My memory is that during Clinton’s admin Newt pushed for deficit reductions and after the Dems lost the midterms Clinton went along. The GOP should get most of the credit for the Clinton deficit reductions.
And Obama!!! His major program was a hugely expensive socialized medicine program. Again the GOP fought hard or the Obama spending would have been worse than the huge amount of extra spending Obama put in place.
26. May 2018 at 20:06
“5% NGDP growth in 2000-07 didn’t do us much good when the Fed switched to inflation targeting after 2008, despite lower trend RGDP growth.”
Don’t argue from a change in trend growth. It’s possible that the inflation targeting caused the lower trend growth.
26. May 2018 at 20:14
Scott,
I wonder what you think about this: One thing I’ve been wondering a lot about for some time is why Treasury rates are below implicit NGDP expectations.
I’ve had at least three thoughts as to why this might be.
1. It’s due to risk-aversion. But if this is true, why the low VIX during fairly long periods during this recovery?
2. It’s due to the Fed having bought so many Treasuries, including longer-term bonds.
3. Short-term interest rates are still above the “natural” rate.
I’ve consistently leaned toward #3. I think #2 is a symptom of #3.
I understand of course that interest rates aren’t determinitive, but are instead the effect of expected money supply growth versus demand.
Some economists look at a U3 rate below 4% and conclude we must be near full employment, but productivity growth is still low, which should lower the natural unemployment rate, if such a thing even exists.
I can’t help, but think looser policy is needed, despite not wanting to be a market monetarist hammer that only sees nails.
26. May 2018 at 20:22
I should say too, that I understand inflation is somewhere near the Fed target, and money’s neutral in the long run, but if policy is expected to be tighter in the long run due to the Fed’s expected reaction function, it preserves the opportunity to gain real GDP growth by having inflation temporarily above target.
26. May 2018 at 21:20
Let me also expand on what I mean by “reaction function”. I mean the market expects the Fed to tighten policy if NGDP falls, at least conditionally.
27. May 2018 at 09:32
Bob, You said:
“My memory is that during Clinton’s admin Newt pushed for deficit reductions and after the Dems lost the midterms Clinton went along. The GOP should get most of the credit for the Clinton deficit reductions.”
Your memory is faulty. Clinton raised taxes in 1993 over GOP objections. Newt favored tax cuts.
Whenever the GOP takes power and can actually do what they like, deficits soar. The GOP is the party of big deficits.
James, Monetary policy does not determine trend growth. That view got totally discredited in the 1970s.
Michael, I don’t understand your point #3. That makes the mystery even bigger, rates should be even lower.
I suspect it partly reflects the fact that expectations of future NGDP growth are lower than recent growth rates. The rest is a global downtrend for savings/investment reasons.
It’s not #4, as the Fed’s share of Treasuries is no higher than 10 or 15 years ago.
27. May 2018 at 10:24
Scott,
A global savings glut, if anything, would lower the natural interest rate, correct? Am I mistaken in thinking this supports my perspective? Is it really silly to think RGDP growth should be higher?
Thanks for pointing out that the Fed’s share of Treasuries isn’t higher. I didn’t even bother to look it up, because I think it would still reflect tight monetary policy.
I think that if we have a run of the mill recession, the market expects the Fed to again ride the brakes to some degree during QE, limiting its effect to less than that of simply lowering the Fed Funds rate during normal times.
I’m not saying there’s nothing to the secular stagnation hypothesis, but I think it’s a relatively minor cause of low RGDP growth. Your words, those of Larry Summers, and those of Rogoff keeping ringing in my ears, but I think Rogoff is right. I think we’ll see higher RGDP growth than secular stagnation would suggest, if we can go long enough without another recession to set us back. In many, many deep recessions after downturns secular stagnation hypotheses abound, only to be shown to be wrong. As he points out, recoveries from recessions in which there are financial crises typically are long, but then real growth picks up and often surprises.
27. May 2018 at 10:34
Also, I look at it this way. Is it just a coincidence that there were financial crises in the US and Europe with deep recessions and glacial recoveries, and then suddenly relatively acute problems with productivity, RGDP growth potential, etc. showing up in the midst, or is there likely a connection?
Yes, demographic changes can reasonably be expected to slow growth for both, but what if even those expectations aren’t that reasonable? What about what appears should be a real tech boom going on that isn’t boosting productivity or RGDP growth?
27. May 2018 at 15:48
Scott said:
>Your memory is faulty. Clinton raised taxes in 1993 over GOP >objections. Newt favored tax cuts.
Yes, Clinton raised taxes but he also tried to raise spending. We have Newt and the GOP to thank for limiting spending and lowering the deficit. The GOP put off socialized medicine (Hilary Care) until Obama. I had to go to Cato to refresh my memory on this. See:
https://www.cato.org/publications/commentary/no-bill-clinton-didnt-balance-budget
27. May 2018 at 16:26
Bob,
Clinton ran on a platform to balance the budget and reform welfare and he signed bills into law that did just that.
27. May 2018 at 17:20
Michael Said:
>Clinton ran on a platform to balance the budget and reform >welfare and he signed bills into law that did just that.
Yes, very true. I give Clinton a lot of credit for this. I also give Newt credit for keeping pressure on spending reductions and thus helping Clinton to keep his campaign promises. I think Bill Clinton worked with Republicans regarding the economy and that this was good for the country. I don’t think we will get another Democrat like Bill for a very long time.
27. May 2018 at 18:32
Let me clarify a point and say that I think the Fed needs to expand the money supply to lower short-term rates while boosting long-term rates. We need to finally see that healthy yield curve that portends a strong recovery. I think NGDP should be boosted to at least at least .5%-1% across entire curve.
My prediction is that U3 would fall at least .5% more, along with real GDP and productivity, and hence, wages.
27. May 2018 at 18:34
I meant to say RGDP, productivity, and wages would rise in rough proportion.
27. May 2018 at 18:35
And that is, NGDP growth
should be boosted by .5%-1%.
27. May 2018 at 21:16
Michael, You said:
“As he points out, recoveries from recessions in which there are financial crises typically are long,”
He’s wrong, US recoveries from financial crisis are typically fast.
In any case, the Fed should not be focused on RGDP, as monetary policy determines NGDP, not RGDP.
And the productivity slowdown began after 2004, not 2008.
Bob, No, the GOP didn’t stop HillaryCare, the Dems couldn’t even pass it in 1993 when they controlled Congress. You are deluding yourself if you think the GOP produces lower deficits. Look what happens when they take power, it’s always much bigger deficits.
27. May 2018 at 22:39
Scott,
Rogoff was speaking in the global context, but even looking at the US, how many financial crises can we count over the past century? I count the Great Depression, the S&L crisis and recession, and the Great Recession. Am I missing something? Those were all followed by long recoveries.
And if the Fed shouldn’t focus on RGDP, then why have a monetary authority at all? They should just let inflation collapse and RGDP with it. Obviously, they shouldn’t try to solve supply-side problems, which is what you meant, but I’m talking about a demand-side problem.
Have a look at this graph, in which I plot the YOY change in producitivity against the effective Fed Funds Rate:
https://fred.stlouisfed.org/graph/?g=k0bZ
It’s always tempting to see what we expect to see, but I think I see a pattern suggestive of what I’m talking about. Productivity is highly cyclical. This is why the BLS breaks it up into cycles here:
https://www.bls.gov/opub/btn/volume-6/below-trend-the-us-productivity-slowdown-since-the-great-recession.htm
Now, let’s plot producitivity against 10-year TIPS data:
https://fred.stlouisfed.org/graph/?g=k0cq
The TIPS data only goes back to 2003, but it suggests to me that higher inflation would bring higher productivity, and hence, higher RGDP, of course.
How is this picture consistent with low rates due to a global savings glut?
27. May 2018 at 22:52
Scott:
Hilary Care from Wikipedia:
“…In that 1994 election, the Republican revolution, led by Newt Gingrich, gave the GOP control of both the House of Representatives and the Senate for the first time since the 83rd Congress of 1953–1954, ending prospects for a Clinton-sponsored health care overhaul.”
If the Dems had won the 1994 mid terms they may have pushed through Hilary Care. I give Newt and the GOP credit for stopping socialized medicine in 1994.
27. May 2018 at 23:21
I should walk you through what I see in the Fed Funds graph verus productivity. I see a pattern in three recessions in which the Fed overtightened, then under-stimulated, leading to extended periods of low productivity.
28. May 2018 at 06:48
Michael Sandifier,
If Fed officials were so pessimistic about their ability to create inflation in 2008, why did they take measures to sterlizie their open-market operations and introduce IOER?
28. May 2018 at 07:05
W. Peden,
You’re reading me exactly wrong. I stated above that the Fed was “riding the brakes” while doing QE, because they feared inflation expectations could get ahead of them.
28. May 2018 at 11:24
I think the NAIRU mindset leads to procyclical inflation. Since we don’t know what the NAIRU would be, we want to keep testing the depths until we have rising inflation along with low unemployment. The NGDP mindset avoids the whole problem.
28. May 2018 at 16:05
Scott,
Good AEI post, except…
The OECD puts Japan’s peak GDP per capita (PPP) at $30,800 in 1991 where the U.S. was at $35,700 (in 2011 dollars) so 83%, not 75% as you wrote, and it also fell quite a bit, to 73% in 2000, I’d say more than a modest drop. (A little known fact: Since 2000, U.S. and Japanese per capita growth has been almost identical.)
Second, you wrote that Sony is an example why governments picking winners is not a good idea but Sony and Honda were not part of the Japanese government’s “strategic development” to pick “national champions.” In fact, the government impeded them to an extent in the beginning.
Sony is a diverse company where 60% relates to electronics while 40%
does not. It also is the #1 maker of virtual reality counsels with just over half of the world’s market sales in a rapidly growing area of electronics.
https://stats.oecd.org/index.aspx?DataSetCode=PDB_LV
28. May 2018 at 22:52
Back in the distant past of Obama-era 2012 there was a dustup over whether the Fed is more hawkish during Democratic administrations and inexplicably becomes more doveish during Republican administrations.
Wonder whether there’s something to that…
28. May 2018 at 22:59
David,
The Volker Fed caused a recession in 1982 under Reagan, the Greenspan Fed did so under H.W. Bush, and Bernanke’s Fed did so under W. Bush.
29. May 2018 at 05:28
Volcker caused two recessions. First one during Carter’s last year.
29. May 2018 at 06:24
Just a comment on Clinton and taxes. He lowered Cap Gains from “ordinary income rates” to 10%. This had an enormous impact on deficit reduction—leading to what should have been obvious then—absurd forecasts of surpluses for the foreseeable future. I swear it seems like it is impossible to know anything.
Re: your main comment. You did say you did not make a comment on monetary policy—but you seem concerned that the Fed does not know what it is doing, or is at least self-contradictory. I don’t doubt that or even have an opinion. But when I see experts exasperated, it reinforces my fear we really know very little. Either that or the impact of these opinion differences have minor impacts.
29. May 2018 at 08:22
Scott,
I allude to a general principle above, which I state below. I hope you can shoot holes in this, but if you can’t, then I may have discovered a way to measure output gaps and determine the natural rate of interest with surprising precision.
Principle:
In large, diverse, healthy economies, the rate of interest on government debt should roughly equal NGDP growth expectations. Otherwise, the demand for and supply of money are necessarily in disequilibrium.
In monetary equilibrium, the opportunity cost of holding government debt is the nominal economic growth rate, given the zero-sum symmetry between rates of return on government debt versus the broad economy. Otherwise, the expected return on the value of the dollar versus output will be either too high or low, depending upon whether monetary policy is too tight or loose.
Does that make sense, or am I way off?
29. May 2018 at 08:23
I should’ve written “unit of currency” instead of dollar, but you get the idea.
29. May 2018 at 14:06
“James, Monetary policy does not determine trend growth. That view got totally discredited in the 1970s.”
Seems to me you are still reasoning from a change in trend.
We agree monetary policy changed, why couldn’t it alter trend growth? It’s powerful enough to cause recessions and to permanently lose real growth. Why not cause trend changes too?
30. May 2018 at 06:35
Tolerating > 2% inflation today is not quite ‘too little too late’ but it’s approaching that. We needed 5% inflation in 2010-2013, 2.4% inflation today might make an analysis of the Fed’s policy bias look better, but we really needed this years ago when people were moldering in a weak labor market (such as myself).