Stanley Fischer has no idea about what tight
monetary policy means!
Marcus Nunes/Feb 2, 2016
In early January, he thought four rate hikes in 2016 was in the
“ballpark”.
In a speech yesterday he was less sanguine, but still believes
monetary policy remains accommodative.
The framework under which the Fed operates, which Kocherlakota, who
knows what he´s talking about, clearly set out recently, permeates
the Fischer´s speech: “gradual” and “normalize”.
According to Fischer:
“[M]y colleagues and I anticipate that economic conditions
will evolve in a manner that will warrant only gradual
increases in the federal funds rate, and that the federal
funds rate is likely to remain, for some time, below the
levels that we expect to prevail in the longer run” [the
normal level].
The saddest thing is to see that to Fischer, as well as to many
other members, what informs monetary policy is
employment/unemployment and oil/commodity prices! Within that
framework, inflation will climb back to 2% when oil prices
stabilize and unemployment falls a bit more!
In a recent post, using the federal funds future rate, David
Beckworth has argued that monetary policy has been tightening since
mid-2014. That´s quite true as the chart indicates.
More generally, that reflects the fact that NGDP growth, the best
measure of the stance of monetary policy, has turned down since
that time. This fall in AD growth has been accompanied by
“negative” trends in most indicators of economic activity and
sentiment.
Only when a recession is announced by the NBER will the Fed realize
it has been on a tightening spree!