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The Fed did exactly what they needed to do. If the alternatives are a) housing prices go up, and then go down later as the Fed removes stimulus, or b) 30% unem

The Fed did exactly what they needed to do. If the alternatives are a) housing prices go up, and then go down later as the Fed removes stimulus, or b) 30% unemployment, then the Fed should choose b. If asset prices crash later, that's not the Fed's problem. Their job is to prevent inflation and prevent unemployment. They've done that. The impact on the stock market is incidental.

adam_arthur 6y ago
Yes, the Fed is supposed to be concerned with inflation, but the CPI measure used to gauge inflation is not comprehensive enough. Inflation of assets, home prices, equities should be considered. Their mandate is not comprehensive enough. They've created a huge societal risk by effectively propping up companies that took on excessive risk or were otherwise poorly managed. Yes, they blunted unemployment in the short run, but excessive risk taking is now being rewarded, which has longer run consequences. It's natural and healthy for poorly run companies to fail in times of crises... it leads to strong companies surviving and more stability in the long run. They've also positioned it such that it will be very difficult to raise interest rates in a reasonable timeframe. When the next crisis comes, there are fewer levers to pull. Finally, it's pretty clear the Fed is watching the stock market closely, as they backed off on increasing rates after the market dipped in Dec 2018. Their actions show they aren't strictly abiding by their mandate (see also: they very recently changed their rules on what they consider unacceptably high inflation)
- QuesnayJr 6y ago
  They clarified their rules -- before they just said "2%", but they switched to "an average of 2% over some period". It's not like they switched to an inflation target of 20%. Having inflation be below 2% for long periods of time is not something that ever came up before 2008, and the Fed is promising that they won't remove stimulus too soon. I don't agree that companies failing in a recession is "natural". I guess COVID is natural, but a restaurant business that goes under because their customers are temporarily afraid of dying is not a result of being poorly run, but of bad luck. I also don't agree that there is too much risk taking -- rather I think there is too little. High interest rates on government debt rewards lazy investors who don't want to work to find good investments.

adam_arthur 6y ago

Yes, the Fed is supposed to be concerned with inflation, but the CPI measure used to gauge inflation is not comprehensive enough. Inflation of assets, home prices, equities should be considered. Their mandate is not comprehensive enough. They've created a huge societal risk by effectively propping up companies that took on excessive risk or were otherwise poorly managed. Yes, they blunted unemployment in the short run, but excessive risk taking is now being rewarded, which has longer run consequences. It's natural and healthy for poorly run companies to fail in times of crises... it leads to strong companies surviving and more stability in the long run. They've also positioned it such that it will be very difficult to raise interest rates in a reasonable timeframe. When the next crisis comes, there are fewer levers to pull. Finally, it's pretty clear the Fed is watching the stock market closely, as they backed off on increasing rates after the market dipped in Dec 2018. Their actions show they aren't strictly abiding by their mandate (see also: they very recently changed their rules on what they consider unacceptably high inflation)

QuesnayJr 6y ago
They clarified their rules -- before they just said "2%", but they switched to "an average of 2% over some period". It's not like they switched to an inflation target of 20%. Having inflation be below 2% for long periods of time is not something that ever came up before 2008, and the Fed is promising that they won't remove stimulus too soon. I don't agree that companies failing in a recession is "natural". I guess COVID is natural, but a restaurant business that goes under because their customers are temporarily afraid of dying is not a result of being poorly run, but of bad luck. I also don't agree that there is too much risk taking -- rather I think there is too little. High interest rates on government debt rewards lazy investors who don't want to work to find good investments.