Two decades later, Mr Bernanke’s doctrine is facing a stiff test in the reverse direction—as a framework for dealing with frazzled, not frothy, markets. On one flank the Fed is trying to douse the red-hot embers of a crisis that began with a run on Silicon Valley Bank . On the other officials face stubborn inflation, having failed to wrestle it under control in the past year.
In the end the Fed was undeterred. Having already lifted rates by nearly five percentage points over the past year—its steepest tightening in four decades—the latest increase of a quarter-point was, in numerical terms, piddling. But as a measure of the Fed’s resolve, it was freighted with significance: it showed that Mr Powell and his colleagues believe they can use monetary-policy tools, especially interest rates, to tackle inflation, even when tightening poses risks to financial stability.
For Fed watchers, though, such cross-cutting actions look less surprising. In several cases—after a big bank collapse in 1984, a stockmarket crash in 1987 and a hedge-fund blow-up in 1998—the Fed briefly stopped raising rates or modestly cut them but resumed tightening policy before long. Economists at Citigroup, a bank, concluded that these experiences, not 2008 or 2020, are more pertinent today.
Three actually. The third is the almost certain catastrophe of the wrong fix rushed into place. That, after all is what the evidence suggests is what actually happens!
POTUS should get rid of tariffs on imported goods from China, not because we support the CCP but because it will lower prices across the board. This is the one thing the admin has not tried over the past 18 months to curb inflation.
The Fed is entirely responsible for all of this. It kept interest rates at essentially zero for 13 years. Money must cost something. It produces all sorts of corruption when it does not. Everyone is chained to the dollar, the de facto reserve currency.
Good read! wdmorgan2 TheHoustonWade
Time for a serious rethink on separating prudential regulation from the conduct of monetary policy. Fed panicked & slashed rates during the pandemic. Stayed too loose for too long. Then in an attempt to safeguard credibility hiked too fast. Meanwhile bank solvency issues surfaced
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im the dragon