Evidence that over the past year monetary policy has tightened

This recent piece by Tim Duy provides the right perspective:

I believe monetary policymakers generally concur with Ritholtz. They see zero interest rates as an artifact of the financial crisis. The economy today resembles normality—and so, too, should monetary policy. Hence the push to raise rates this year, possibly as early as the next meeting in September.

Consider instead that zero—or at least, very low—short-term rates reflect the realities of the new normal for economic growth. In this scenario, quantitative easing was the Fed’s emergency policy setting. And by ending quantitative easing, the Fed has already normalized policy.

Monetary policymakers will resist this interpretation. They do not believe that tapering and ending the bond-buying program reflects a tightening of policy.

All changes in the images take place towards the end of the QE3 taper:

The dollar broad index appreciates and 1 year treasuries go up

MP Tight_1

Oil prices tank and the stock market flattens

MP Tight_2

NGDP growth recoils

MP Tight_3

It seems US monetary policymakers have very little understanding of what monetary policy is!

One thought on “Evidence that over the past year monetary policy has tightened

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