Yes! I've been thinking a lot about your posts a few years ago pointing our that higher rates eventually mean higher long-run inflation and every time I see the inflation numbers today and hear the discussion I think exactly "we're in the second half of John's graphs!". Relieved to hear you see it the same. ... now the harder issue: What would YOU do if you were Fed chair (and FOMC would follow you 100%)?. Personally, I'm not sure since the Fed can't control the fiscal side, engage in micro deregulation, or end war with Iran. I hate to say it but holding steady for now seems like the best move, repeating publicly that the long-run target is 2%, and then praying CPI level drops post Iran and they can cut incrementally as inflation slows... (these hold constant that we are in Ample reserve framework with IOR)... thoughts?
Thanks John. you are the first to point out this short and long term relationship. But the analysis leaves out a Very important input in today world, unappreciated by economists of yore. the economy is a financial based economy…read debt. raising rates raises the price of everything one way or another in both the short and long term. so in the 6-24 month time frame you get a diminished investment , lower supply, higher input costs ie debt costs go up. Of course the fiscal problems, left as is, is truly inflationary and is greatly magnified by rising rates. the proverbial catch 22.
The answer is do nothing. The bottom line let the markets stabilize or reach a “equilibriun corridor” my term, . probably some bad stuff along the way but hopefully spread over several years. BTW this means making sure the market understands the is NO More Fed PUT. the market will then know the fed means business.
Yes! I've been thinking a lot about your posts a few years ago pointing our that higher rates eventually mean higher long-run inflation and every time I see the inflation numbers today and hear the discussion I think exactly "we're in the second half of John's graphs!". Relieved to hear you see it the same. ... now the harder issue: What would YOU do if you were Fed chair (and FOMC would follow you 100%)?. Personally, I'm not sure since the Fed can't control the fiscal side, engage in micro deregulation, or end war with Iran. I hate to say it but holding steady for now seems like the best move, repeating publicly that the long-run target is 2%, and then praying CPI level drops post Iran and they can cut incrementally as inflation slows... (these hold constant that we are in Ample reserve framework with IOR)... thoughts?
Thanks John. you are the first to point out this short and long term relationship. But the analysis leaves out a Very important input in today world, unappreciated by economists of yore. the economy is a financial based economy…read debt. raising rates raises the price of everything one way or another in both the short and long term. so in the 6-24 month time frame you get a diminished investment , lower supply, higher input costs ie debt costs go up. Of course the fiscal problems, left as is, is truly inflationary and is greatly magnified by rising rates. the proverbial catch 22.
The answer is do nothing. The bottom line let the markets stabilize or reach a “equilibriun corridor” my term, . probably some bad stuff along the way but hopefully spread over several years. BTW this means making sure the market understands the is NO More Fed PUT. the market will then know the fed means business.
Would the “Taylor Rule” be useful?