Mar 29Liked by Marcus Nunes

The analysis is well done, persuasive and clear. But the policy prescription at the very end assumes skilled expertise by an omniscient FOMC staff in manipulating undefined Fed tools. It also assumes the staff's willingness to ignore their precious Phillips Curve models (which never predict anything).

The Fed controls the quantity of bank reserves and currency, not what banks and the public do with them. The Fed cannot regulate the stock or flow of specific Ms (which depend on choices of households, firms, and banks), and they cannot predict velocity (ditto).

If given a mandate to somehow make sure "NGDP growth rises at a 4%-5% click" the Fed would put the IOR rate much higher than that to raise unemployment, curb bank lending, shrink investor wealth, and thwart private borrowing. That can indeed create recessions, but the Fed always eases like crazy in recessions, so the result is more instability, not stability.

Countries with sustained low inflation like Switzerland or Japan never have high interest rates, while countries with high inflation always do. But the Fed is Wicksellian not Fisherian. Whatever target you give them, they'll try to hit it hard with their beloved sledgehammer - the fed funds rate.

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The U.S. was already headed into negative R-gDp growth in the 1st qtr. of 2020. Monetary policy had already hit historical levels by early 2021. Nothing's changed in > 100 years.

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