We will, we won´t

The Fed may have cried wolf a few too many times recently. But investors should remember that in the original parable, the wolf did show up eventually. The time to start preparing for higher rates is now.

How best to prepare? By level targeting NGDP.

Cry Wolf

Many, however, have gone “stark mad”. Steve Williamson is a case in point:

…if a central bank wants to hit a higher inflation target, it has to set nominal interest rates higher, on average. So, in the course of transitioning to a higher inflation target, the central bank must, at some time, have to raise nominal interest rates in order to produce higher inflation. But then, it must be true that, if the central bank has an inflation target of x%, and inflation is persistently y%, where y < x, then the central bank must raise its nominal interest rate target.

Since the Fed is so keen in doing exactly that, it should try it. If it doesn´t work, just blame St Louis Fed VP Steven Williamson!

One thought on “We will, we won´t

  1. I wonder if the neo-Fisherians really believe their posturing, or if they are just having fun while collecting a paycheck.

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