Wednesday, June 21, 2017
Three dissents with the Fed
A fair number of people think the Fed is being far, far too aggressive with rate hikes:
Larry Summers - 5 reasons the Fed may be making a mistake.
Jared Bernstein - is the Fed fighting an old war?
Neel Kashkari - why I dissented again.
FWIW, I'm one of the guys who likes to point out
(1) recessions don't start on their own and we have no forward indication of a recession starting for the next few years, so there's no reason to be in a hurry to raise rates just so we can drop them later;
(2) we (or those of us who aren't idiot RBC theorists) actually know for a fact that Fed rate hikes can cause recessions, and those aren't in the Fed's mandate;
(3) a tight employment market can easily produce zero upward wage pressure if labour has zero market power;
(4) we're not seeing any inflation pressures either, so there's no reason for the Fed to do anything;
(5) the Fed's employment numbers are pretty useless anyway.
Though at the same time, I'm strangely OK with the idea that an IS curve can be vertical for upward rate hikes (what we're seeing now) as well as downward ones (which is one theoretical reason for downward rate drops having no positive impact on investment).