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Money And Inflation

Saturday, June 18, 2011 - 8:23 PM
The author believes the fed should be tightening...  slowly... but soon.
Therefore, if we are Old Monetarists, New Monetarists, or just sensible macroeconomists who understand that the Fed ultimately controls inflation by controlling growth in Fed liabilities used in exchange, we have to be worried if the Fed does not move to tighten. Barring some game-changing information, that tightening should at least happen by early fall.

In the current context, monetary policy should not be about futile attempts to manage the labor market. As I discussed here, it's best to view QE2 as irrelevant, in which case the fact that this asset purchase program concludes at the end of this month is also irrelevant. Even if we think that there are significant nonneutralities from monetary tightening, gradual increases in the interest rate on reserves in this context are certainly preferable to a large, quick tightening, which would entail potentially greater sacrifice.

MikeMike327 posts since
Feb 22, 2010
Rep Points: 876