The financial crisis has changed the mechanics of monetary policy. When economic growth improves to the point that the Federal Reserve finally decides to increase short-term interest rates, it will need a new approach to do so.
The celebration of the US economy’s second-quarter growth “rebound” to 4 percent will be short. The headline number’s strength exaggerates the growth pace. It would be dangerous if this number speeds up Federal Reserve tightening.
The average growth rate of the first half of 2014 was 0.95 percent, quite a lot weaker than the 3 percent pace expected early in the year by the Fed and most analysts and is actually pretty close to stall speed.
The IMF is urging the ECB to implement massive quantitative easing, but such a course of action is unlikely to promote short-term economic growth and would risk creating bigger bubbles in many asset markets.
The recent drop in US unemployment to 6.1 percent has raised hopes for a stronger economy, even though analysis of the major features of the US economy since 2008—regarding growth, employment, wages, and investmen—shows that all are dismal, notwithstanding the recent modest pickup in monthly employment increases. America needs a stronger recovery.
This now has to have been the third time in the past 15 years that the Fed has blown asset price bubbles through its excessively easy monetary policy stance. And seemingly the Fed learns nothing from the subsequent bursting of these bubbles.
Simon Johnson says, “For more than a century, we have recognised that the availability of central bank liquidity support creates the potential for serious moral hazard.” Indeed it does – in fact, this has been understood for well over two centuries. But as the numerous recent crises have shown, we still do not know how to cope with it.
We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.
Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.
Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.