Tomorrow we learn when each Fed official thinks it will be the right time to raise interest rates. So, is it liftoff in 2022 vs 2023? Pointless to guess, even harmful. Solution: Fed, stop guessing.
To have the helmsperson predict where they expect to set the rudder some time in the future is silly. It will be set (or ought to be) at the point that will have the vessel on course given the wins and currents AT THAT TIME. More useful would be to have each member disclose their opinion of what the value of some instrument should be right now ad possibly what it should have been in the past
"What was the cost of their past mistakes? After the Great Recession, raising interest rates too soon delayed the recovery and people getting back to work. AND it meant they consistently fell short of 2% inflation target. So much for the dual mandate. So much for a job well done. Do better, Fed."
I agree with your diagnostic, but not the cause. I have also watched the thing for 20+ years, and I think the real thinking among the inflation hawks inhouse is essentially to treat the 2% target as a ceiling, because they think inflation is the worst problem. (The ECB has both a legal problem and an institutional problem in this regard as well.) Most inflation is wages, and business dudes hate hate hate to increase pay, so they think inflation is the worst problem and respectable appointees tend to think their sole customers are CEOs talking their books.
(The proof was Yellen's vice making a business speech in which he had fifteen paragraphs about inflation (in 2015!), one paragraph about low employment and finished with two or three paragraphs about inflation.)
It's not so much institutional ineptitude as just a straight-up ideological and political struggle (on the very down low, mind). Powell is trying to do it differently, but usual suspects don't *want* him to do it differently and here we are.
elm
the two (?) paragraphs about objectives in the Fed Act needs to be rewritten
I agree about the "inflation ceiling" issue but even that rests on a more basic misunderstanding that the inflation target "should" be zero but 2% is a sop toward reality to keep unemployment from being "too" high.
No because some nominal prices are more inflexible downward than upward zero average inflation and real shocks will mean that some markets will not clear. (The great TP "shortage" of 202o was a perfect example.) So some amount of inflation is optimal. Is it 2%? 4%? It ought to be the business of the Fed to figure out the real income maximizing rate. That is what the Fed's dual mandate ought to mean.
FOMC Members go around blindfolded!
https://thefaintofheart.wordpress.com/2015/10/25/looking-for-wally-when-there-are-many-wallies/
To have the helmsperson predict where they expect to set the rudder some time in the future is silly. It will be set (or ought to be) at the point that will have the vessel on course given the wins and currents AT THAT TIME. More useful would be to have each member disclose their opinion of what the value of some instrument should be right now ad possibly what it should have been in the past
"What was the cost of their past mistakes? After the Great Recession, raising interest rates too soon delayed the recovery and people getting back to work. AND it meant they consistently fell short of 2% inflation target. So much for the dual mandate. So much for a job well done. Do better, Fed."
I agree with your diagnostic, but not the cause. I have also watched the thing for 20+ years, and I think the real thinking among the inflation hawks inhouse is essentially to treat the 2% target as a ceiling, because they think inflation is the worst problem. (The ECB has both a legal problem and an institutional problem in this regard as well.) Most inflation is wages, and business dudes hate hate hate to increase pay, so they think inflation is the worst problem and respectable appointees tend to think their sole customers are CEOs talking their books.
(The proof was Yellen's vice making a business speech in which he had fifteen paragraphs about inflation (in 2015!), one paragraph about low employment and finished with two or three paragraphs about inflation.)
It's not so much institutional ineptitude as just a straight-up ideological and political struggle (on the very down low, mind). Powell is trying to do it differently, but usual suspects don't *want* him to do it differently and here we are.
elm
the two (?) paragraphs about objectives in the Fed Act needs to be rewritten
I agree about the "inflation ceiling" issue but even that rests on a more basic misunderstanding that the inflation target "should" be zero but 2% is a sop toward reality to keep unemployment from being "too" high.
No because some nominal prices are more inflexible downward than upward zero average inflation and real shocks will mean that some markets will not clear. (The great TP "shortage" of 202o was a perfect example.) So some amount of inflation is optimal. Is it 2%? 4%? It ought to be the business of the Fed to figure out the real income maximizing rate. That is what the Fed's dual mandate ought to mean.