Odd Lots How Nearly Two Decades Of Fed Policy Contributed To Bubbles, Busts, And A Boom In Debt
Dec 9, 2019
Srinivas Thiruvadanthai, Director of Research at the Jerome Levy Forecasting Center, dives into the intricate relationship between the Federal Reserve's monetary policies and economic instability. He explains how inflation targeting over the past two decades has fueled a significant buildup in private debt and financial speculation. Thiruvadanthai challenges traditional views on low interest rates, emphasizing the hidden risks and complexities in the economy. He also advocates for a balanced approach to fiscal and monetary strategies to navigate future challenges.
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Fed Policy's Unintended Consequences
- The Federal Reserve's focus on stable inflation, rather than just low inflation, has unintended consequences.
- This stability contributes to a buildup of private debt and other systemic risks.
Inflation Targeting's History
- Inflation targeting, while officially adopted in 2012, has been implicitly practiced since the mid-90s.
- This involves minimizing inflation volatility, creating a predictable environment for lenders.
Pre-Inflation Targeting Approach
- Before the mid-90s, the Fed focused on low inflation but didn't specifically target a fixed rate.
- Their approach was more reactive to economic heating up and emerging inflationary pressures.