This Bloomberg headline caught my eye:
The Most Dovish Fed in History Is on a Mission to Spur Inflation
Have people already forgotten the 1970s? From 1973 to 1981, inflation fluctuated between 6% and 13%. Even if you (wrongly) believe that inflation was caused by supply-side factors, the ultra-dovish Fed was not even trying to reduce inflation during that period. Both inflation and NGDP growth were quite high, and the Fed set the real fed funds rate at a negative level throughout most of 1974-81. On numerous occasions, they actually reduced interest rates sharply despite extremely high inflation rates. At the time that the target interest rate was cut to 9% in July 1980, the inflation rate was still over 13%!
The subhead is also questionable:
The central bank’s new policy framework tolerates above-target price increases. Now all we need is economic growth.
Economic growth does not cause inflation. The Fed was able to create plenty of inflation throughout the 1970s, even in years without strong economic growth. Perhaps the 11% NGDP growth rate from 1971-81 had something to do with it.
READER COMMENTS
marcus nunes
Oct 10 2020 at 9:04pm
Quite the contrary, the Fed´s on a “mission to fail”, by not reaching its objective of 2% AIT!
https://thefaintofheart.wordpress.com/2020/10/09/is-the-new-monetary-policy-framework-ait-an-improvement/
Thomas Hutcheson
Oct 11 2020 at 9:34am
Maybe it would be more cautious to say that the Fed has not yet begun to implement the supposed new policy. It has allowed the TIPS inflation expectation to remain far below its supposed target, indeed to have fallen after the announcement.
Matthias Görgens
Oct 13 2020 at 4:20am
It doesn’t matter when the Fed first begins to implement the policy. It matters when the market consensus first (if ever) believes the Fed will succeed in implementing the policy.
Michael Pettengill
Oct 11 2020 at 5:32am
There is lots of inflation today, and for two decades.
The problem is businesses are refusing to meet customer demand and issue lots more shares of stock, except for a few, like Elon Musk, steadily selling new shares to raise cash to pay workers to build more and bigger factories filled with new and faster machines.
There is still a shortage of PPE what exists is dated so why isn’t anyone selling shares to first design much better PPE such as covered in a recent news story, raising funding via the kickstarter model to get a Chinese contractor to make them, and then paying workers to build factories fill with manufacturing machines. See:
Are Face Shields More Effective Than Face Masks? https://nyti.ms/2F2fiD5
Instead there is an attitude of not building new capital in order to inflate the price of old capital built in the 20th century.
Also, in real estate, old housing in rural America is being abandoned faster than new housing in Blue cities get built inflating housing capital prices. Why aren’t new factories and businesses being built in existing rural towns with plenty of infrastructure (roads, water, sewer, power, schools,, etc) using the huge flow of savings chasing assets?
I grew up in Indiana in the 50s and 60s and the small cities and towns were growing with new factories, etc driving growth. Why has that reversed since 1970? All the growth is in one city, Indianapolis. Why? Is Indiana run by leftist central planners?
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