Ryan Avent & I, “knock-out on fourth”!

In late January I was very critical of RA´s “defense” of Bernanke. At the time he wrote:

The American economy has faced month after month of elevated unemployment and the risk of a double-dip recession, all alongside historically low inflation. The case for more Fed action has been strong for quite some time. As frustrating as the delay has been, it is now plain that the Fed is working its way toward a monetary policy that is more intellectually coherent and effective at the zero lower bound than was previously the case. But for this long march, the American economy would be in far worse shape. And if this evolution continues, Mr Bernanke may well be judged to have accomplished something truly remarkable and praiseworthy, all within a very difficult economic and political environment.

I commented:

Bernanke is portrayed as “victim”, but one that´s “fighting back” against terrible foes. But the reality is very different. Bernanke is directly responsible for helping shove the economy over the edge and acting ineffectively to help push it back up!

Uau! RA cited my post in a “rebuttal”:

IT SEEMS that a few people were surprised, and perhaps disappointed, to see me offer some praise to Ben Bernanke for changes announced in the most recent Federal Open Market Committee statement. Don’t get me wrong. I would like the Fed to do more, and I would have preferred it to have done more some time ago. I think we can chalk quite a lot of the weakness of the American recovery up to insufficiently stimulative monetary policy—a hugely costly policy error. Every once in a while, however, it’s worth taking a break from haranguing policy officials when they show that they’re learning. And every once in a while, it’s important to remember the context in which Fed officials are making policy.

And while time may prove me wrong, it does seem that the Fed has pivoted in a very useful direction over the past year. As of early last year, it seemed that the Fed’s policy framework would only allow additional expansionary measures when deflation appeared to loom as a threat.

About  which I commented:

I don´t see any “pivoting” by the Fed. It´s still set in avoiding deflation but is terrified of inflation, even when that´s a “non issue”. Bernanke has even satisfied his long standing “dream” and enshrined the 2% inflation target.

And RA now writes the “last act” in this “play”, in which “time has proven him wrong“:

In other words, current data are perfectly consistent with continued easing, including new asset purchases. Backing off that strongly signals that the Fed is unwilling to tolerate inflation above target for any meaningful length of time, despite the fact that inflation has been on average well below target since last 2008. To the extent that recent economic strength was built on expectations of QE3 and/or a period of catch-up inflation, the Fed has effectively tightened by signaling a forthcoming pause in policy action.

In other words, I seem to have been wrong about the Fed’s intentions. It has come no closer to effective policymaking at the zero lower bound, and Americans can expect growth between 2% and 3% at best while this regime persists. That is all that the Fed is prepared to engineer or allow.


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