Transcript: Are we in for a hard landing? (ft.com)
Blanchard thinks it’s a possibility.
The odd thing is that he explains very well the origin of the shocks that correctly led the Fed to crank up inflation (or NGDP growth if that's what you think it is, or should be, targeting). And when the relative price adjustments were made, to crank inflation/NGDP growth back down. [As a matter of fact, I think it did not start cranking down soon enough and so has had to crank down from higher and for longer than it otherwise would have needed to.] But then he comes out with the bizarre idea that the entire episode of over-target inflation/NGDP just happened -- popped into existence like a quantum fluctuation from the vacuum state -- immaculately untouched by the Fed instrument settings. But that to _further_ reduce inflation from almost at target to target WILL require active tightening?
Now going forward, is it necessary to leave the EFFR (a synecdoche for the vector of monetary policy instruments the Fed might use) "higher for longer" to get PCE inflation down to 2% as Blachard thinks.? If so, is it because real wages have overshot their full employment equilibrium (which could be the implication of labor market tightness measurements, except that is not what they show)? It is hard to see why for the reasons Marcus Nunes points out here [It is important to understand the "nature of the beast" (substack.com)] (and has been consistently pointing out!). In addition, TIPS expectations are marginally under target.
Could be that Blanchard shares the Fed’s view that once it begins to reduce the EFFR, it must continue, that reversing course (and then re-reversing if necessary) is inconceivable?
Whatever the reason, if the Fed follows Blanchard’s reasoning, a hard landing coud result.
[Standard bleg: Although my style is know-it-all-ism, I do sometime entertain the thought that, here and there, I might be mistaken on some minor detail. I would welcome comments on these views.]
I don´t understand how you think OB has any sort of "correct" explanation!
"The odd thing is that he explains very well the origin of the shocks that correctly led the Fed to crank up inflation..."
I'm curious. I noticed you worked at the World bank and assume you may have some inner knowledge of the workings at the Fed. Has anyone at the Fed every considered making some sectors of the economy like energy say circular and not growth/inflation dependent or minimally dependent. I realize it's a very strange idea but it speaks to fundamental rights like food,clothing shelter, hopefully with education healthcare in an evolved, evolving society.