ACTV - The Federal Reserve Must Choose Its Interest Rate Strategy
2024-04-10 01:25:00 ET
Summary
- The Fed will have to keep interest rates high to meet its inflation target but give up on maintaining financial stability, or else it can cut interest rates to stabilize the financial system.
- The Fed’s predicament stems from the fact that it kept monetary policy too loose for too long in response to the 2020 Covid-induced recession.
- The Fed’s monetary policy largesse helped send inflation to a multi-decade high of 9.1 percent by June 2022. At the same time, it helped fuel a commercial real estate bubble and a frothy equity market.
There is good reason to be disappointed with the Federal Reserve. It has gotten us into an awful economic mess as a result of its earlier ultra-easy monetary policy. That policy managed to create both an inflation and a financial stability problem....
The Federal Reserve Must Choose Its Interest Rate Strategy