Of course hindsight is 20/20, but we should have learned that 2021 was the time for a bit revenue raising tax reform. [If you're skittish about the Fed not being expansive enough, post pone effectiveness a year.] And that way when the Fed delayed starting to reduce inflation in 2021, Biden could have blamed the Fed. [He could and should have anyway, but having reduced the deficit and since many people mistakenly THINK deficits cause inflation, he would have been on the high ground.]
Close. Fiscal policy does not affect inflation (or unemployment) if the Fed is targeting inflation as it now supposedly is. What fiscal policy affects is interest rates. Interest rates are the “give” in the way the Fed deals with changing fiscal policy. And higher interest rates are a drag on long term growth. THAT, rather than because their causing inflation, is why we need tax reform to close the deficit. [The difference with the Obama era is that back then the Fed was not really targeting inflation. It apparently sort of had an inflation ceiling but it did not act to prevent inflation from falling below 2%. The 2009 relief package really DID provide “stimulus.”]
I think the Fed ought to have already started inching down the Effective Federal Funds Rate; if 5.25% is good for continuing to slow inflation, 5.00% would be almost as good. More to the point, however is that the Fed needs to be more flexible, willing to move rate down and, if necessary, back up as circumstances change. My concerns is that it allows itself to be constrained by its own previous announcements and could still get caught flat footed and cause a recession. I think this happened in reverse, in 2021 when it delayed raising the EFFR (until March 2022)
Of course hindsight is 20/20, but we should have learned that 2021 was the time for a bit revenue raising tax reform. [If you're skittish about the Fed not being expansive enough, post pone effectiveness a year.] And that way when the Fed delayed starting to reduce inflation in 2021, Biden could have blamed the Fed. [He could and should have anyway, but having reduced the deficit and since many people mistakenly THINK deficits cause inflation, he would have been on the high ground.]
Close. Fiscal policy does not affect inflation (or unemployment) if the Fed is targeting inflation as it now supposedly is. What fiscal policy affects is interest rates. Interest rates are the “give” in the way the Fed deals with changing fiscal policy. And higher interest rates are a drag on long term growth. THAT, rather than because their causing inflation, is why we need tax reform to close the deficit. [The difference with the Obama era is that back then the Fed was not really targeting inflation. It apparently sort of had an inflation ceiling but it did not act to prevent inflation from falling below 2%. The 2009 relief package really DID provide “stimulus.”]
I think the Fed ought to have already started inching down the Effective Federal Funds Rate; if 5.25% is good for continuing to slow inflation, 5.00% would be almost as good. More to the point, however is that the Fed needs to be more flexible, willing to move rate down and, if necessary, back up as circumstances change. My concerns is that it allows itself to be constrained by its own previous announcements and could still get caught flat footed and cause a recession. I think this happened in reverse, in 2021 when it delayed raising the EFFR (until March 2022)
See [https://thomaslhutcheson.substack.com/p/framework-for-monetary-policy-1]
And [https://thomaslhutcheson.substack.com/p/framework-for-monetary-policy-2?r=8ylpe&utm_campaign=post&utm_medium=web]