It is always interesting to see how others perceive you. For instance, I wasn't sure what to make of this from Paul Krugman:
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, commenting from his perch at Mark Thoma’s invaluable blog, has seemed most sympathetic to the urge to hike rates — joins the what-are-they-thinking chorus.
When I read that I realized that perhaps I wasn't defining my space quite right. Primarily, I attempt - albeit, admittedly, not always successfully - to understand the world as Federal Reserve policymakers see it. Failing to put your personal opinion in the background is one of the biggest mistakes a Fed Watcher can make. Right now, for example, policymakers are somewhat hawkish relative to market expectations, so my writing has a hawkish tilt, which is what I think Krugman interprets as "sympathetic."
Occasionally, however, my opinions become more evident, which is what Krugman interprets as joining the "what-are-they-thinking chorus." In truth I am not particularly sympathetic with the Federal Reserve's campaign to normalize policy. That campaign is predicated on the belief that the economy is close to full employment. Krugman sees the natural rate of unemployment as mostly likely below 5%. I concur. The Fed's Summary of Economic Projections, however, places the natural rate in the 5.2-5.5% range. My thinking is that is as much as 0.5 percentage points or even more too high. That is a big, big error, somewhere around 800,000 real lives impacted. A lot of jobs to risk when inflation is trending downward, in my opinion.
I also believe that the fact that we have experienced two recessions since 1991 yet no outbreak of inflation is prima facie evidence that the Fed, on average, maintains too tight a monetary policy. Seems likely a little bit looser policy would yield significant welfare gains.
Anyway, I think readers probably get the idea at this point. My expectations of a particular Fed policy does not necessarily indicate support for that policy. In future writing I will endeavor to more clearly delineate between the two.
