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Tag Archives: Monetary Policy

The problem with fiscal policy

Most fiscal policy consists of adjustments in taxes and transfers.  However, the effects of this type of fiscal policy are largely offset by changes in monetary policy, at least when the Fed is doing its job.  Defenders of fiscal policy respond that changes in real government spending can directly boost output even when there is complete monetary offset of the effects of budget deficits on nominal spending.  In practice, however, even this sort of “real” fiscal...

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Inflation is worse than it looks

The government recently announced that the 12-month rise in the CPI slowed from 8.5% in March to 8.3% in April.  But this is not good news, as inflation is actually getting worse. People have become used to thinking of inflation in a “let bygones be bygones” fashion.  Don’t cry over spilled milk; let’s focus on the inflation rate going forward.  That might be appropriate under the Fed’s old inflation targeting regime, but is not appropriate under average inflation...

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The Crossroads Is Looming! SchiffGold Friday Gold Wrap May 6, 2022

The Fed hiked rates 0.5% this week in an effort to stem the inflation tide. But the economy already looks shaky and the central bank has barely started this inflation fight. Friday Gold Wrap host Mike Maharrey breaks down the messaging that came out of the Fed meeting and concludes the central bank is getting closer and closer to a crossroads. What will the central bank do? And what will it mean for the economy?The SchiffGold Friday Gold Wrap podcast combines a succinct summary of the...

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Steer the bus AND straighten the road

I often use the analogy of steering a bus when discussing monetary policy. A rise in the equilibrium or “natural” rate of interest is like a bend in the road. The Fed must adjust its policy rate to keep the economy from going off into a ditch.  But this analogy only goes so far. The Fed’s most important duty is not to adjust interest rates to changes in the natural rate, rather it’s to reduce instability in the natural rate of interest with a better monetary policy...

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Buckle Up for a Crashing Economy and More Inflation

Jerome Powell began hinting that inflation might be a problem last August. In November, Powell retired the word “transitory.” But here we are in May and the Federal Reserve still hasn’t done anything substantive to address the inflation problem.And now it may be too late. It’s probably time to buckle up for more inflation – and perhaps a crashing economy.Powell and Company have been talking tough for months, but there hasn’t been a whole lot of action. In March, the central bank raised...

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The Fed Takes a Weak Swing at Inflation

The Federal Reserve came through with the second rate hike of this tightening cycle, bumping up the Fed Funds rate by 0.5%. It was the biggest interest rate boost by the Fed since 2000. But given the extent of the inflation fight, this hardly seems like a bold, aggressive move. In fact, it was a weak swing that looks more like shadow boxing. And one has to wonder just how long the Fed can stay in the ring.The 50 basis point hike was expected and there was some speculation that the Fed...

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Has the Fed Already Pricked the Housing Bubble?

The Federal Reserve has raised rates once – a mere 25 basis points (with another hike on the table today). So, it’s just getting started, but has it already popped the housing bubble? It sure looks that way. The question is how long will it take for the air to really start coming out.As mortgage rates push up, mortgage applications continue to fall. As of last week, applications were down 17%, and at the lowest level since May 2020 when the economy was shut down for COVID, according to...

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Mercatus Center Friedman symposium

The Mercatus Center has just published a new symposium looking at how Milton Friedman might have reacted to recent monetary policy issues.  Here is a list of the papers: Essays Beckworth, David. “What Would Milton Friedman Say about Financial Stability?” April 2022. Hendrickson, Joshua. “What Would Milton Friedman Say about the Coordination of Monetary and Fiscal Policy?” April 2022. Horan, Patrick. “What Would Milton Friedman Say about the Fed’s New Framework?” April...

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Avoid snap judgments

Back in 2008, many pundits claimed that the Great Recession showed the fallacy of a deregulated financial system. When all of the dust had settled, however, several points became clear:1. The US banking system has always been highly regulated. 2. Much of the regulation has the effect of making the banking system more unstable.3. The actual cause of the Great Recession was not free market ideology; it was a tight money policy that caused NGDP growth to fall 8% below...

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“The Economy Is Strong!” and Other Myths and Rumors: SchiffGold Friday Gold Wrap April 29

Jerome Powell and other policymakers at the Fed keep telling us they can raise interest rates and slay the inflation dragon because the economy is strong. But these central bankers have a long history of being wrong. And as host Mike Maharrey explains in this episode of the Friday Gold Wrap podcast, the recent GDP numbers undercut this latest Fed narrative. He also talks about a startling confession from the IMF director and Q1 gold demand.The SchiffGold Friday Gold Wrap podcast combines...

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