Just a few idle comments to follow up on yesterday’s post. As we settle into the soft landing, it seems to me that we have, whether by accident or by design, tested market monetarism - the idea that the Fed should aim for a nominal GDP target. And it has passed the test with flying colors.
Well I like this post, but I take umbrage as the clumsy analogy:
"The Fed just hit a home run and they’re debating whether the infield should have shifted."
Thus, the Fed is at bat in your analogy, and not playing defense.
The proper analogy is something like, "The Fed just a hit a home run, and they're debating whether the central bank swung at a pitch out of the strike zone."
I try to play out a scenario where the Fed kept inflation at 2% in 2021-2022 and my brain can't do it. However, I can play out several scenarios where the Fed made different decisions from 2006 through 2010 that led to slightly higher inflation but MUCH better economic conditions.
Based on recent comments by Powell I wonder if he expects CRE price corrections to act as a brake on GDP growth for the next few years.
I wonder if the Fed would have had a better time, if they had clearly communicated what they were going to do. (I'm not sure they even knew themselves?) As our market monetarist friends point out, if you credibly tell people what to expect, expectations can do all the heavy lifting.
I remember the Fed introducing average inflation targeting halfway through 2020, but then their actions seemed to show that they had abandoned it as soon as it came to the policy's first test.
It's interesting to compare Scott Sumner's writing during that period. I mostly remember him bemoaning the demise of average inflation targeting, and later almost making fun of all the forecasts saying that we are hundred percent going to have a recession or that we might already be in one. (Scott's position is as always that we can't reliably predict recessions apart from giving some general odds.)
Well I like this post, but I take umbrage as the clumsy analogy:
"The Fed just hit a home run and they’re debating whether the infield should have shifted."
Thus, the Fed is at bat in your analogy, and not playing defense.
The proper analogy is something like, "The Fed just a hit a home run, and they're debating whether the central bank swung at a pitch out of the strike zone."
I try to play out a scenario where the Fed kept inflation at 2% in 2021-2022 and my brain can't do it. However, I can play out several scenarios where the Fed made different decisions from 2006 through 2010 that led to slightly higher inflation but MUCH better economic conditions.
Based on recent comments by Powell I wonder if he expects CRE price corrections to act as a brake on GDP growth for the next few years.
Interesting piece, thanks!
I wonder if the Fed would have had a better time, if they had clearly communicated what they were going to do. (I'm not sure they even knew themselves?) As our market monetarist friends point out, if you credibly tell people what to expect, expectations can do all the heavy lifting.
I remember the Fed introducing average inflation targeting halfway through 2020, but then their actions seemed to show that they had abandoned it as soon as it came to the policy's first test.
It's interesting to compare Scott Sumner's writing during that period. I mostly remember him bemoaning the demise of average inflation targeting, and later almost making fun of all the forecasts saying that we are hundred percent going to have a recession or that we might already be in one. (Scott's position is as always that we can't reliably predict recessions apart from giving some general odds.)