Must-Read: It was Milton Friedman who insisted, over and over again, that in any but the shortest of runs high nominal interest rates were not a sign that money was tight--that the central bank had pushed the market interest rate above the Wicksellian natural rate--but rather that money had been and probably was still loose, and that market expectations had adjusted to that.

There are thus two puzzles in trying to understand the internal deviation of the Federal Reserve from Wicksellian orthodoxy today: Why have commercial bankers been able to maintain what looks like outsized influence? Why did the lessons Milton Friedman taught the establishment right now stick?

Paul Krugman: Rate Rage: "You can argue, as Brad DeLong does, that... the end the nominal interest rate depends on the rate of inflation, and that locking us into a lowflation or deflation world would be very bad for the banks. But nobody has ever accused bankers of being especially clear about macroeconomics.... [And] what matters for today’s bank executives is... the next few years[;]... in the long run they are all full-time golfers. So the demand for higher rates is coming from a narrow business interest group... that has a lot of clout among central bankers...