Fama's Fallacy: Hoisted from Ten Years Ago

Ramesh Ponnuru: Recession Is a Far Larger Threat Than Inflation: "We should use this moment of relative monetary calm to consider deeper questions, such as whether that target is the right one.... The real failing of the current monetary regime is not that it generates too much inflation. We haven’t had ruinous levels of inflation since the early 1980s (something for which Volcker’s own chairmanship deserves great credit)...

...We have, however, had a severe recession and a weak recovery, beginning a decade ago, and it is not at all clear the Fed is well-equipped to prevent a recurrence.... The Fed... may be tempted to tighten money inappropriately after a negative supply shock. In 2008, for example, higher oil prices seem to have led to a more restrictive Fed policy than warranted.... Another possible complication during the next downturn: Because interest rates have been generally declining for a generation and the Fed typically relies on reductions in interest rates to boost the economy, it may find itself with little ability to help in the next recession...


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