Earth To Fed
- Joe Carson
- Oct 4, 2024
- 1 min read
Earth to Federal Reserve--- It is not prudent monetary policy to lower official rates by 50 basis points despite robust job growth, full employment, above-trend growth, above-target inflation, and soaring asset prices. The decision to delay rate hikes when inflation was on the rise and then reduce rates prematurely could be considered a (big) mistake. Policymakers are striving to determine the neutral interest rate, R*, that neither spurs nor hampers growth. However, setting monetary policy should primarily rely on the economy's actual performance (such as concrete data on employment, growth, inflation, and asset prices) rather than an academic framework that may not be practical or reliable in real-world situations.
Using "actual performance" implies using measurements and formulas to determine policy rates. Like, say, the Taylor Rule. For instance, the Taylor Rule would have been hiking rates aggressively in 2021 - a year before the Federal Reserve let inflation set in. In actuality, the Federal Reserve's wild discretion doesn't exhibit even a halfsie with any reasonable algorithm. Seat of the pants flying or management by committee isn't done by any practitioner of anything serious at all, much less the world's largest economy.