Memo to the Fed: We need a light at the end of the tunnel

The tunnel is low NGDP growth as far as the eye can see.  The evidence is low interest rates as far as the eye can see.  That looks like Japan.  The BOJ has failed to provide a light, and the results are clear.

What would be a light at the end of the tunnel?


There is zero justification for the Fed allowing a nominal recession to begin right now.  None.  If they do, history will judge them very harshly.

It may not happen, but the risk right now is unacceptably high.

Here’s Josh Hendrickson:

The biggest problem with current Federal Reserve policy is that it lacks any coherent direction or policy goal. Expectations matter. (Read Woodford, for heaven’s sake! This is supposed to be mainstream monetary theory.) For Fed policy to be successful, they need to outline an explicit goal for policy in the form of a target for nominal income and the price level and commit to using the tools at their disposal to achieve that goal. Random announcements of specific quantities of asset purchases provide no guidance and will not be effective. Temporary monetary injections are not successful for much the same reason that temporary tax cuts are not successful (see Weil, “Is Money Net Wealth?”, 1991). Without a coherent goal or strategy, monetary policy with all its fits and starts will continue to fail.

Here’s David Beckworth:

Still, I am not sure this new operation twist will pack much of a punch.  The reason being is that the Fed is once again adding monetary stimulus without setting an explicit target.



6 Responses to “Memo to the Fed: We need a light at the end of the tunnel”

  1. Gravatar of Benjamin Cole Benjamin Cole
    22. September 2011 at 08:11

    Which is better–not ever reading Scott Sumner and just enduring the perma-recession in ignorance, or reading Scott Sumner and enduring the recession is a constant state of mild anger?

    Enlightenment has its drawbacks.

    Please Ben Bernanke, read Scott Sumner.

  2. Gravatar of Scott N Scott N
    22. September 2011 at 08:33

    Yes, we can only hope that a few of the new hits on Scott’s blog have come from Bernanke’s computer.

  3. Gravatar of Morgan Warstler Morgan Warstler
    22. September 2011 at 09:52

    Memo to Scott.

    To see the light, you have to OPEN your eyes.

    Right there, Nov. 2012 – is the light!

    If you can’t see it, you must have a problem.

    HOLY MOLY COW! There is a light there!

    And sure enough, when members of the Fed think the Gvt. is acting to serve private interests, they will NATURALLY, without introspection, start to think that money is too tight.

    BUT THEN also, plenty of businesses are going to be rapidly expanding, because Rick Perry is going to hang a “Open for Business” sign on America.

    And we’re going to frog march ANY public employee who gets in the way of ANY job creator.

    Businesses are going to CHEER! The Fed will feel the energy!

    This is basic human psychology, stop pretending it isn’t real.

  4. Gravatar of Scott Sumner Scott Sumner
    22. September 2011 at 15:07

    Ben and Scott, Thanks.

    Morgan, My fear is that the light is an oncoming freight train.

  5. Gravatar of Morgan Warstler Morgan Warstler
    22. September 2011 at 16:54

    I can’t think of a single comparative bad effect from regime change… not to the economy. What could possibly be worse than IMPOTUS?

  6. Gravatar of “Straight from the horse´s mouth” | Historinhas “Straight from the horse´s mouth” | Historinhas
    22. September 2011 at 18:03

    […] posts by Market Monetarists today (here, here, here, for example). All saying the same thing: market indicators – stocks, long rates, dollar exchange […]

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