The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

What Would _______ Do?

09/19/2019

For decades, the Fed controlled the economy primarily with interest rates.  Decrease rates to pump up the economy and employment.  Or, increase rates to tamp down the economy and inflation.  That was sufficient until the global financial crisis of 2008/9.  Fed chief Ben Bernanke introduced the technique of controlling the economy with the Fed’s balance sheet, called quantitative easing/tightening/twisting etc.  It was very successful at the time but has since become stale.

Listening to current Fed chief Jay Powell yesterday, I missed Bernanke’s inventiveness.  The Fed’s control of interest rates seems to be slipping, and balance sheet maneuvers are becoming unpopular.  What would Ben do?

The worst case is that we are at the end of monetary policy, when fiscal policy must “do something.”  Since fiscal policy is controlled by the President AND the Congress, we can assume fiscal policy is somewhere between impotence and death.

I expect there are other tricks inside the Fed and hope those tricks will be introduced soon.  Please, Jay!

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