The Fed continues to raise interest rates aggressively, making it costly for Americans to defend democracy in Ukraine and threatening a recession. It's time for Congress to act.
What a foolish post. You supposedly worked for the Fed, yet you are a complete fantasist. Yep, let's pause the hikes because Claudia said so and let inflation spiral out of control. Maybe they should reignite QE too.
The last time Congress/Treasury told the Fed to keep rates low was when the US was fighting fascism. Note, if the Fed breaks financial markets as its aggressive rate hike may, it will have to stop selling Treasuries and start buying them as lender of last resort, which will push down interest rates.
Claudia, my agreement or disagreement aside, you ignore the fed-congressional tension of the early-80s, which is the time that's brought up in reference to unhinged inflation expectations. Congresspeople at the time argued, much like you're arguing today, that Volcker should step down, the fed should lose independence. In turn, Volcker went ahead with tightening despite the fact that he might lose the chair due to political concerns. 50 years later and we herald Volcker's decision as saving the US economy--perhaps an oversimplification.
Would you care to add this context to your argument? Your argument explicitly must include the history of this event if you're going to argue that congress should influence the fed today. Why should the fed be politically driven today when such action might have completely derailed Volcker's efforts in the early-80s? If Volcker was right in the 80s, Congress was wrong in the 80s. We experienced short term pain for long term pleasure. Are you arguing the opposite? What evidence do we have that congress has the economic acumen if the fed does not?
I added historical context. With a war in Europe and a pandemic, the 1970s and 1980s are not the correct comparison. 1918 and World War II are more appropriate.
Volcker's efforts? Enough with the hagiography. He caused a massive recession -- great. As for inflation, it was the massive reduction in the price of oil that was responsible.
Claudia has hit the nail right on the head. The notion that central banks can operate independently of fiscal policy is a fiction and a very dangerous one. All central banks must coordinate monetary policy with their Treasury’s fiscal policy. The Fed needs to be working to balance monetary policy with fiscal policy.
I'd like to better understand Sahm's argument on how this is supposed to work. If we stipulate that monetary policy "works", then it raises output and inflation relative to the counterfactual without stimulus. More monetary stimulus means more inflation (eventually), so long run yields rise. How does the fed fight that? Do they buy treasuries to hold long run rates down? What happens if they switch from a marginal to the sole buyer? The BOJ owns half the JGBs. Is that okay? If we can have low rates, high output, and moderate inflation, what is the tradeoff?
I would like someone, maybe Claudia!, to explain to this interested non-economist the boogeyman of inflation expectations "becoming unmoored." If the fed isn't planning to accomodate further price increases, do they think theres so much slack in broad monetary aggregates that there is still place for increasing money supply without base expansion? To me, it seems like a lot of hand waving and excuse for hawkish monetary policy with dangerous consequences.
But what exactly does Congress tell the Fed to do?
Yes I have MY message: don't announce instrument settings in advance. Make each move the one that is most likely in the Fed's judgment to restore the 2% Flexible Average Inflation Target [unless they announce a different target, say 5% NGDP target.]
Procedurally, Congress could require the Fed to do hindsight audits, stating what it would have done in the past with the information available in the past but with its current updated model of the economy.
What a foolish post. You supposedly worked for the Fed, yet you are a complete fantasist. Yep, let's pause the hikes because Claudia said so and let inflation spiral out of control. Maybe they should reignite QE too.
The last time Congress/Treasury told the Fed to keep rates low was when the US was fighting fascism. Note, if the Fed breaks financial markets as its aggressive rate hike may, it will have to stop selling Treasuries and start buying them as lender of last resort, which will push down interest rates.
Claudia, my agreement or disagreement aside, you ignore the fed-congressional tension of the early-80s, which is the time that's brought up in reference to unhinged inflation expectations. Congresspeople at the time argued, much like you're arguing today, that Volcker should step down, the fed should lose independence. In turn, Volcker went ahead with tightening despite the fact that he might lose the chair due to political concerns. 50 years later and we herald Volcker's decision as saving the US economy--perhaps an oversimplification.
Would you care to add this context to your argument? Your argument explicitly must include the history of this event if you're going to argue that congress should influence the fed today. Why should the fed be politically driven today when such action might have completely derailed Volcker's efforts in the early-80s? If Volcker was right in the 80s, Congress was wrong in the 80s. We experienced short term pain for long term pleasure. Are you arguing the opposite? What evidence do we have that congress has the economic acumen if the fed does not?
I added historical context. With a war in Europe and a pandemic, the 1970s and 1980s are not the correct comparison. 1918 and World War II are more appropriate.
Volcker's efforts? Enough with the hagiography. He caused a massive recession -- great. As for inflation, it was the massive reduction in the price of oil that was responsible.
Claudia has hit the nail right on the head. The notion that central banks can operate independently of fiscal policy is a fiction and a very dangerous one. All central banks must coordinate monetary policy with their Treasury’s fiscal policy. The Fed needs to be working to balance monetary policy with fiscal policy.
Did I miss Congress declaring war on Russia?
Should just stay at home and forget the macro. This is written like a Democrat campaign stump speech, what a joke.
I'd like to better understand Sahm's argument on how this is supposed to work. If we stipulate that monetary policy "works", then it raises output and inflation relative to the counterfactual without stimulus. More monetary stimulus means more inflation (eventually), so long run yields rise. How does the fed fight that? Do they buy treasuries to hold long run rates down? What happens if they switch from a marginal to the sole buyer? The BOJ owns half the JGBs. Is that okay? If we can have low rates, high output, and moderate inflation, what is the tradeoff?
I would like someone, maybe Claudia!, to explain to this interested non-economist the boogeyman of inflation expectations "becoming unmoored." If the fed isn't planning to accomodate further price increases, do they think theres so much slack in broad monetary aggregates that there is still place for increasing money supply without base expansion? To me, it seems like a lot of hand waving and excuse for hawkish monetary policy with dangerous consequences.
But what exactly does Congress tell the Fed to do?
Yes I have MY message: don't announce instrument settings in advance. Make each move the one that is most likely in the Fed's judgment to restore the 2% Flexible Average Inflation Target [unless they announce a different target, say 5% NGDP target.]
Procedurally, Congress could require the Fed to do hindsight audits, stating what it would have done in the past with the information available in the past but with its current updated model of the economy.