Every METAR would like to know the Federal Reserve’s future plans.
The Fed has “doves” who think that inflation will end quickly and more fed funds rate increases will cause a recession with no benefits. The Fed has “hawks” who refer back to the 1970s for the harm caused by pausing a tightening cycle too soon.
Fed Chair Jerome Powell has expresed his firm determination to continue tightening and hold steady until inflation has reached the target of 2% for an extended period. But can Powell be trusted, when he caved to pressure and lowered the fed funds rate in 2019?
By Nick Timiraos, The Wall Street Journal, Dec. 12, 2022
[huge snip of doves vs. hawks]
Former Fed governor Randal Quarles, who has known the Fed chair since they worked in the Treasury Department in the early 1990s, said Mr. Powell is determined to avoid Mr. Burns’s mistakes of failing to control inflation.
During a panel discussion this spring, Mr. Quarles told a story of how a newly hired security guard had come to his Fed office late one night after Mr. Quarles accidentally triggered an alarm. After the guard showed interest in the artworks hung on his office wall, Mr. Quarles began explaining why he had displayed an abstract painting done by Mr. Burns.
No explanation was needed. “That’s the guy who let inflation get out of control,” the guard said.
The story shows, Mr. Quarles said, “that this is an institution from top to bottom that knows the one great sin that will be remembered by everyone 50 years later is if you let inflation get out of control.” [end quote]
I wish the Fed would find a nice, neutral rate and keep it steady (with maybe a few tweaks) like they did in the 1990s. (As described in Ben Bernanke’s book, " 21st Century Monetary Policy.") I wish the Fed would quit the Greenspan/ Bernanke policy of raising rates, holding them a short time and then cutting them to zero, holding them long past the point at which the economy has recovered. That leads to bubbles that eventually burst.