“Don´t reason from an employment change”


Federal Reserve Bank of Boston President Eric Rosengren said Saturday that his confidence that the U.S. central bank can raise rates soon has diminished in the wake of underwhelming employment data.

“The jobs report was disappointing; it seems to validate the decision” of Fed officials to hold off on lifting interest rates off near zero levels at their meeting last month, Mr. Rosengren said in an interview with The Wall Street Journal. The performance of the September jobs data, released Friday, “highlights that we need to continue to monitor how the data is coming in to determine when it is appropriate” to boost the cost of borrowing, he said.

That´s in clear violation of how Milton Friedman said monetary policy should be conducted:

The first requirement is that the monetary authority should guide itself by magnitudes that it can control, not by ones that it cannot control. If, as the authority has often done, it takes interest rates or the current unemployment percentage as the immediate criterion of policy, it will be like a space vehicle that has taken a fix on the wrong star. No matter how sensitive and sophisticated its guiding apparatus, the space vehicle will go astrayAnd so will the monetary authority.

What many of those highly paid policymakers do not realize is that by harping on the employment cord they are in fact tightening monetary policy, thus obtaining the ‘fantastic’ result of tight monetary policy at ‘zero’ interest rate!

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