I was going to take a pass (a longer one) on writing a blog post tonight. But I opened Bloomberg.com and saw quite a few articles on the Fed and economic indicators. I was becoming too accustomed to the new and improved James Bullard, the one from “The Fed Talks” series who thinks NGDP targeting is the way to go. But here, the old hawkish Bullard from 2009 is shining through, and I couldn’t resist the keyboard.
Perhaps Bullard should go back and look at his PCE inflation charts again, talk to job seekers and newly laid off former employed, and then make up his mind about unnecessary economic damage because that is what we are looking at here – a far cry from “managing monetary and credit aggregates commensurate with the economy’s long term ability to increase production” that the Fed has said it can do with a 2% core PCE inflation target.
In posts since September, I have sprinkled through some of my analysis of what I think about the stance of monetary policy that can be summarized as just as soon as it was getting to where it ought to be, mildly on the easy side in the first half of 2018, to where we could get just a little bit ahead, they went and assassinated any hit of it and then some in the second half with the rate increases and nearly doubling the amount of asset sales beginning in mid-July ’18 that continued through January. The asset sales had slowed to a trickle in February ‘19, though I have not looked at them lately and do not know the amounts of any recent sales.
And I am not sure that I need to look at the level of daily net asset sales and reverse repos at this point to know there is a problem. If they are net selling and reverse repo’ing any amount, it’s too much. Period.
If stopping net sales and reverse repos means that the short nominal interest rate will decline past the artificial floor set by the Fed – then YES, Mr. Bullard – there is a need to rush for an emergency rate meeting. Otherwise there’s economic damage being inflicted unnecessarily, and there are opportunity costs associated with this that everyone pays one way or another.
I am unsure how any of the current state is justified relative to the official inflation target that in the policy statements has been defined as symmetrical, which I assume means that inflation is supposed to run higher during resource reallocation than it otherwise would. If the Fed got away with persistent undershooting by say, 40%, pre-trade war, trying to do that now that the Donald has worked his black magic is INSANE.
I want Bullard to explain in detail why there isn’t an emergency. If he plans on waiting for the unemployment rate (a trailing indicator) to rise before making up his mind, then perhaps he should provide even more detail in his assessment. After all, it’s the least he could do in a world where negative demand shocks don’t start with Federal Reserve System employees (though a requirement for them to walk the talk ought to be mandatory).