Paul Krugman hopes the Fed is listening:
Tough Fedding: The monetary-policy gap between insiders and outsiders — between economists at the Fed and other policy institutions, who still seem eager to raise rates, and those of us on the outside, who think this is a really, really bad idea — continues to widen. This morning Tim Duy — one of the outsiders who ... has seemed most sympathetic to the urge to hike rates — joins the what-are-they-thinking chorus. Core inflation is drifting downward, not upward, and is now well below the Fed’s target. So why hike?
The immediate answer appears to be a fixation on the unemployment rate, which is close to standard estimates of full employment. But is this really a solid justification for raising rates absent any actual sign of the rising inflation we’re supposed to see at full employment?
Actually, what do we mean by full employment, anyway? ...
You don’t want to push this too hard, but my point is that recent data are perfectly consistent with the view that full employment requires an unemployment rate below 5 percent; the most recent data would suggest an even lower rate. This might or might not be right; I don’t know. But the Fed doesn’t know either.
And in the face of that uncertainty, the crucial question is what happens if you’re wrong. And the risks still seem hugely asymmetric. Raise rates “too late”, and inflation briefly overshoots the target. How bad is that? (And why does the Fed sound increasingly as if 2 percent is not a target but a ceiling? Hasn’t everything we’ve seen since 2007 suggested that this is a very bad place to go?) Raise rates too soon, on the other hand, and you risk falling into a deflationary trap that could take years, even decades, to exit.
I really, really hope this is getting through.