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Tuesday, June 14, 2016

The Fed is Making the Same Mistakes Over and Over Again

Larry Summers:

The Fed is making the same mistakes over and over again: As the Federal Reserve meets today and tomorrow, I am increasingly convinced that while they have been making reasonable tactical judgement, their current strategy is ill adapted to the realities of the moment. Exuding soundness is the task of policymakers. Provoking thought is the task of academics. So here are some not-entirely-formed reflections. ...

Sort of what I was trying to say (Brad DeLong also), particularly this part:

... Watching the Fed over the last year there is a Groundhog Day aspect. One senses they really want to raise rates and achieve a more “normal” stance.  But at the same time they do not want to tighten when the economy may be slowing or create financial turmoil. So they keep holding out the prospect of future rate increases and then find themselves unable to deliver. But they always revert to holding out the prospect of rate increases soon...

The Fed should be clear now that its priority is not preventing a small step up in inflation, which in fact should be welcomed, or returning interest rates to what would have been normal to a world gone by.

Instead the Fed should focus on assuring adequate growth in both real and nominal incomes going forward.

    Posted by on Tuesday, June 14, 2016 at 01:18 PM in Economics, Monetary Policy | Permalink  Comments (36)


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