Lars sends an ‘unsual’ news article published in Forbes:” Consensus Building That the Fed’s Policies Were Too Tight”
At the beginning:
Is the Fed’s current stance too “loose,” running the risk of triggering inflation? That’s the current debate, and we probably won’t get broad agreement on the answer until the recession is much further in the rearview mirror. Economic consensus tends to build slowly – frequently only in hindsight.
Only now, for example, does consensus seem to be developing among conservative economists over how the Federal Reserve’s monetary policy during 2008 affected the recession. The general feeling now is that the Fed contributed to – and likely worsened – the crisis by keeping money too tight.
At the end:
Even for those who insist on clinging to the interest rate fallacy, there’s a problem: the Fed started raising its target rate in the middle of 2004, and never lowered it again until September 2007. Over that period, the fed funds target rose from 1 percent all the way to 5.25 percent.
This trend may well indicate the Fed held its target too high for too long. Regardless, the economy collapsed on the Fed’s watch, and preventing economic collapse is the reason Washington created the Fed in the first place.
The “in between” is well worth reading.
The chart illustrates, showing the three important components from a market monetarist perspective: Broad Money Supply growth, Money Demand (velocity) and NGDP growth.
See, when the Fed allows money supply to contract while money demand is rising (velocity falling), the result is a massive AD (NGDP) negative shock, something that David Beckworth argues does not mesh at all well with an inflation targeting regime.
But at Forbes, there´s also the “bad cop“!