I can only conclude that Bloomberg is looking to keep money more expensive for political reasons. There is a conventional wisdom that if rates start to drop now it helps Biden.
I think there's _some_ legitimacy to saying that we will not know whether "soft landing" was achieved until we know both that we "landed" (inflation got down to 2% _and then did not rebound_), and the landing was "soft" (we did not have a recession, related to bringing inflation down). If the plane hits the runway and then bounces back into the air before it comes to a stop, did it land?
How long does inflation need to stay in, say, a 2 to 2.5 range, before we say we've landed? People could disagree. I'd say one full year seems like a reasonable benchmark? And we've been below 2.5 for what, six-ish months?
In any case, given that interest rates are still high -- high enough that we're seeing a slowdown in residential and commercial construction -- I wouldn't necessarily say we're _entirely_ done with the effects of the COVID and Ukraine supply shock. The so-called "dilemma" is: Should the Fed continue to hold rates at their current elevated (relative to the past couple decades) level, for fear of having inflation tick back up if they lower rates; or should they start cutting immediately, for fear of causing a recession if they leave nominal rates high, with real rates rising since inflation is falling.
I do not think this is _much_ of a dilemma, though. As soon as you acknowledge that _real rates are rising_, it seems silly to suggest that we have to stand pat on nominal rates. If current policy has achieved a Goldilocksian just-rightness, then maintaining that just-right policy means cutting sooner rather than later. Powell & Co. seem to have navigated between the Scylla of rebounding inflation, and the Charybdis of recession, extraordinarily well, thus far, and their forward guidance for this year -- that cuts will start soon and there will likely be at least three -- seems pretty reasonable.
It is time to call this as the equivalent of the nonsense that came out of the Univ of Chicago during the GFC: Bullshit and trash. It is a good thing -- always a good thing -- that we never relinquished our powers to be amazed. These people probably think of the policy goal of price stability sort-of like soccer. The inflation rate must sit happily around 2% for a while, just as the ball must stay firmly inside the goal, before a celebration erupts. It doesn't cross their minds that this ball can go right through the back of the goal before you get even a fleeting moment to celebrate. We'll then have an altogether different set of issues to worry about. They can't bring themselves to think even in terms of apples and gravity. If it took just 18 months or so for inflation to drop from about 9% to about 2% due to a rapid expansion of supply -- the real supply-side economics -- then how long might it take to go from 2% to zero under current configurations of supply and demand?
The dilemma is that the third, unwritten & unspoken, charge to the Federal Reserve Bank is that its actions must never assist a Democratic President in being re-elected [1]. Provide all the assistance possible to Republican presidents, yes, but never a Democratic or other non-Republican.
[1] or preferably elected in the first place, but that is harder due to the propensity of Republican Presidents to really mess up the general economy and society while in office thus leading to reaction elections
Another question (as asked very early by DeLong and Summers) was and is “should the target be higher than 2%, because the 2% target implies spells at the ZLB?”
The answer to your question remains “yes”. Last year, one might have argued that the target should be raised, but not then, that The Fed had to avoid the impression that they were just saying a 3 or 4% target (the higher being Volcker’s target) would be better because they couldn’t achieve 2% which grapes were source anyway.
Her now have the 2% grapes in hand and they are indeed sour. Now is the time to raise the target to where Greenspan should have set it.
I can only conclude that Bloomberg is looking to keep money more expensive for political reasons. There is a conventional wisdom that if rates start to drop now it helps Biden.
I think there's _some_ legitimacy to saying that we will not know whether "soft landing" was achieved until we know both that we "landed" (inflation got down to 2% _and then did not rebound_), and the landing was "soft" (we did not have a recession, related to bringing inflation down). If the plane hits the runway and then bounces back into the air before it comes to a stop, did it land?
How long does inflation need to stay in, say, a 2 to 2.5 range, before we say we've landed? People could disagree. I'd say one full year seems like a reasonable benchmark? And we've been below 2.5 for what, six-ish months?
In any case, given that interest rates are still high -- high enough that we're seeing a slowdown in residential and commercial construction -- I wouldn't necessarily say we're _entirely_ done with the effects of the COVID and Ukraine supply shock. The so-called "dilemma" is: Should the Fed continue to hold rates at their current elevated (relative to the past couple decades) level, for fear of having inflation tick back up if they lower rates; or should they start cutting immediately, for fear of causing a recession if they leave nominal rates high, with real rates rising since inflation is falling.
I do not think this is _much_ of a dilemma, though. As soon as you acknowledge that _real rates are rising_, it seems silly to suggest that we have to stand pat on nominal rates. If current policy has achieved a Goldilocksian just-rightness, then maintaining that just-right policy means cutting sooner rather than later. Powell & Co. seem to have navigated between the Scylla of rebounding inflation, and the Charybdis of recession, extraordinarily well, thus far, and their forward guidance for this year -- that cuts will start soon and there will likely be at least three -- seems pretty reasonable.
Was Gruber's piece meant to be a lesson on how to write a Puff Piece???
Another of my pet gripes as a registered Old Phart is any headline that ends with a question mark.
The Bloomberg word salad:
It is time to call this as the equivalent of the nonsense that came out of the Univ of Chicago during the GFC: Bullshit and trash. It is a good thing -- always a good thing -- that we never relinquished our powers to be amazed. These people probably think of the policy goal of price stability sort-of like soccer. The inflation rate must sit happily around 2% for a while, just as the ball must stay firmly inside the goal, before a celebration erupts. It doesn't cross their minds that this ball can go right through the back of the goal before you get even a fleeting moment to celebrate. We'll then have an altogether different set of issues to worry about. They can't bring themselves to think even in terms of apples and gravity. If it took just 18 months or so for inflation to drop from about 9% to about 2% due to a rapid expansion of supply -- the real supply-side economics -- then how long might it take to go from 2% to zero under current configurations of supply and demand?
The amazement is raining today.
The dilemma is that the third, unwritten & unspoken, charge to the Federal Reserve Bank is that its actions must never assist a Democratic President in being re-elected [1]. Provide all the assistance possible to Republican presidents, yes, but never a Democratic or other non-Republican.
[1] or preferably elected in the first place, but that is harder due to the propensity of Republican Presidents to really mess up the general economy and society while in office thus leading to reaction elections
Another question (as asked very early by DeLong and Summers) was and is “should the target be higher than 2%, because the 2% target implies spells at the ZLB?”
The answer to your question remains “yes”. Last year, one might have argued that the target should be raised, but not then, that The Fed had to avoid the impression that they were just saying a 3 or 4% target (the higher being Volcker’s target) would be better because they couldn’t achieve 2% which grapes were source anyway.
Her now have the 2% grapes in hand and they are indeed sour. Now is the time to raise the target to where Greenspan should have set it.
I say 4% but will settle for 3%