The best reason not to cut rates 50 basis points next month is that the bond market doesn't think it's warranted. Yes, policy looks restrictive, but the economy is doing OK and markets judge a gradual pace of rate cuts in 2024 poses little risk of recession. Front-loading the rate cuts would be more about sending a message than achieving an economic outcome. Brad, what message do you see a January rate cut sending?
Question. How literally SHOULD we take TIPS expectations of below target inflation? Is this just some calibration error or (as I'm afraid) expectation by one tail of the Fed pushing inflation down below target and causing a recession or two over the next 10 years?
Wow do we ever need the Treasury to give us those shorter tenor TIPS! Now!
"I confess I do not see a valid argument against an 0.5%-point interest-rate cut at the next Fed meeting..."
Or a 0.25% cut at the December meeting! :)
Seriously, I think part of the problem is that the Fed never wants to do anything without having signaled in advance what it will do. That was behind not increasing the EFFR in November 2021.
Forward guidance on instrument setting is just a bad idea, prevents it is from being as data driven as it claims to be.
An awful lot of high powered economists got a shock from the 1974-82 inflationary episode. They're still dealing with nightmares over that. As someone who became unemployed because of the deflationary policies, I've always had a jaundiced view of inflationary hysteria. The FED is like a bunch of generals, fighting the last war. You've dinner yeoman's work pointing out the appropriate historical parallels to the post-COVID inflation. Too bad noone is listening.
The best reason not to cut rates 50 basis points next month is that the bond market doesn't think it's warranted. Yes, policy looks restrictive, but the economy is doing OK and markets judge a gradual pace of rate cuts in 2024 poses little risk of recession. Front-loading the rate cuts would be more about sending a message than achieving an economic outcome. Brad, what message do you see a January rate cut sending?
Question. How literally SHOULD we take TIPS expectations of below target inflation? Is this just some calibration error or (as I'm afraid) expectation by one tail of the Fed pushing inflation down below target and causing a recession or two over the next 10 years?
Wow do we ever need the Treasury to give us those shorter tenor TIPS! Now!
(Meanwhile, re Substack and Nazis, Ken White weighs in, on Substack:
https://popehat.substack.com/p/substack-has-a-nazi-opportunity
To be continued, evidently.)
"I confess I do not see a valid argument against an 0.5%-point interest-rate cut at the next Fed meeting..."
Or a 0.25% cut at the December meeting! :)
Seriously, I think part of the problem is that the Fed never wants to do anything without having signaled in advance what it will do. That was behind not increasing the EFFR in November 2021.
Forward guidance on instrument setting is just a bad idea, prevents it is from being as data driven as it claims to be.
An awful lot of high powered economists got a shock from the 1974-82 inflationary episode. They're still dealing with nightmares over that. As someone who became unemployed because of the deflationary policies, I've always had a jaundiced view of inflationary hysteria. The FED is like a bunch of generals, fighting the last war. You've dinner yeoman's work pointing out the appropriate historical parallels to the post-COVID inflation. Too bad noone is listening.
Yep! They don't even have the unit labor cost excuse the ECB cited in December. I get the bad feeling that they might drag. Fingers crossed.