The duality of Fedster logic is rather striking. On the one hand, they all appear to agree that inflation is “always and everywhere a monetary phenomenon” when it’s time for added “accommodation.” And what they’ve been doing over the last 18 months, using reverse repos as a sort of IoER for the planet, and hiking the rate paid on reserves in the official IoER program that have the impact of tightening policy is, as they have stated, tightening for our own good, or so we’re told.
What is happening now is that these activities appear to be having an impact on inflation in the direction that a pre-emptive strike on inflation would have. Yet, at the Jackson Hole getaway on Friday, we have inflation targeters scratching their heads, saying they don’t know why inflation is headed down.
Would a “Well, duh” be inappropriate and more Cruella DeVille-like of me to say? Three unnecessary “rate hikes” in the last 8 months would have that effect if truly unnecessary. Or perhaps it would be inappropriate of me to point out that this head scratching from inflation targeting central bankers is rather problematic in more ways than just theoretical. They picked the target and stuck it to us come hell or high water, which did indeed come, and now they claim to have no idea why inflation is so low and headed south. It doesn’t leave me with a warm fuzzy that they understand what they are doing well enough to stubbornly cling to it and persist in foisting it on the public with the only comfort being the inability to measure the opportunity cost and the idea that we can’t miss what we’ll never have.
If this sort of right in your face tortured logic isn’t enough, there was other absurd reaching for explanations such as the epidemic of prescription painkiller abuse – we just spend all of our money on dope instead of stuff. This was really surprising because I thought I truly had heard every sorry excuse for labor slack there was to tell.
I think they would do much better to walk the walk and fix the things that are within the realm of monetary policy to fix; and if they claim to be able to control inflation, then they should either do it or forget it and find something that works.