So I take issue with what Brad DeLong writes:
The dot-plots tell us that the FOMC now thinks that it is headed for a 3% Treasury Bill rate–at the upper end of this range, but still very far from a 5% rate. And if we do live in a semi-permanent age of secular stagnation, this will not be a temporary inconvenience but, rather, a permanent structural fact.
That means that if the FOMC keeps its current inflation target then it will have only 3% of sea-room when the next big recession comes, whether next year, next decade, or a quarter century from now.
That means that if the FOMC keeps attempting to raise interest rates back to a 5% normal–or even, unless it is lucky, to a 3% normal–it will find itself continually undershooting its inflation target, and continually promising that rates will go up more real soon now as soon as the current idiosyncratic fit of sub-2% inflation passes.
I do not know anybody seriously thinking about all this who thinks that 3% of sea-room is sufficient in a world in which shocks as big as 2007-2010 are a thing. And I do not know anybody seriously thinking about all this who thinks that pressing for a premature “normalization” of interest rates is a good idea.
Because, “a world in which shocks as big as 2007-2010 are a thing” is only true if the Fed so wishes.
As a good friend reminds me: “Because of group-think (within the econ profession as well as the FOMC), no one even is considering the idea that monetary policy has been unduly tight and whatever “regime” we’re in is the product of their confusion about what they’ve done or should be doing. If nothing else, it would be nice to have someone on the committee who would suggest looking at things from a different perspective.”