People keep asking me what the Fed should do. I've been answering that question for 11 years, and my answer is always the same:
- Stop paying IOER right NOW. It was a mistake from the very beginning in October 2008. It's a contractionary policy, as even the Fed acknowledges. Why would you want a contractionary monetary policy in October 2008? Why would you want a contractionary monetary policy today?
- Switch to level targeting NOW, at least during the crisis and recovery. Preferably NGDP level targeting, but more realistically price level targeting.
- Ask Congress