Why Low Inflation in the Global North Should Be No Surprise

Comment of the Day: Robert Waldmann: Fiscal Policy: "I think that Jared Bernstein puts much too little emphasis on caveat 2b—the FOMC...

...He discusses the Fed's response to fiscal stimulus only as a minor aspect of possibly low multipliers. It is easy (easier) to argue that it will guarantee that the fiscal multiplier is zero.

Congress should make policy with the Fed it has not the Fed it wants. If the Fed is convinced the US is at full employment, it will not allow fiscal policy to push up output. If they are wrong, they will still make sure the fiscal multiplier is very small.

An argument for fiscal stimulus with the Fed we have, must be an argument that a higher nominal interest rate allows more room for conventional monetary stimulus if (and when) the next recession comes. Bernstein's argument is based on the assumption that tax cuts and spending increases cause higher output no matter how the monetary authority responds. He doesn't really believe this and shouldn't assume it...

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