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Clearly correcting the market would help resolve inflationary pressures, while not seriously dampening the jobs market. So if your supposition is correct, they

Clearly correcting the market would help resolve inflationary pressures, while not seriously dampening the jobs market. So if your supposition is correct, they should engineer a decline in the market and real estate to achieve their price stability mandate. Yet everything they do is dragging their feet to support asset prices. So I agree with your assessment in theory, but don't see them living or acting by that logic. They could have ended QE overnight in January, for example. Why not? They continue to pursue low volatility when the times of today warrant higher volatility and less risk taking/speculation.

dragonwriter 5y ago
> They could have ended QE overnight in January, for example. Why not? Probably because no one has confidence enough in any model of the effects of such a large change to base policy on it short of a much more glaring problem than any the Fed is actually facing. The combination of unwinding QE over the period between the last meeting and mid-March and the predicted 25-50 basis point rate hike in mid-March is actually the Fed pumping the brakes on the economy really hard.
- adam_arthur 5y ago
  The Canadian central bank ended QE overnight with no problem. The obvious reason they didn't do it is because they knew markets would decline 5-10% on the surprise. Which would actually aid them by curbing risk taking/speculation, raising the cost of borrowing. I do think Powell is motivated by his reappointment, so that's also playing into his inaction. It's just backfired at this point. We are clearly entering a wage price spiral. Wages rose an annualized 9% last month. To suggest even a 50 bp hike would put us anywhere close to aggressive tightening is just not true. The traditional thinking is that interest rates must exceed rate of inflation to be in a tightening policy regime. The Fed pushed job market past the natural rate of unemployment, and now the only way out is a hiking induced recession. Yet instead of trying to cut off this possibility early, they'll slowly plod along until it's inevitable. There was probably a chance to short circuit the spiral a few months ago.

dragonwriter 5y ago

> They could have ended QE overnight in January, for example. Why not? Probably because no one has confidence enough in any model of the effects of such a large change to base policy on it short of a much more glaring problem than any the Fed is actually facing. The combination of unwinding QE over the period between the last meeting and mid-March and the predicted 25-50 basis point rate hike in mid-March is actually the Fed pumping the brakes on the economy really hard.

adam_arthur 5y ago
The Canadian central bank ended QE overnight with no problem. The obvious reason they didn't do it is because they knew markets would decline 5-10% on the surprise. Which would actually aid them by curbing risk taking/speculation, raising the cost of borrowing. I do think Powell is motivated by his reappointment, so that's also playing into his inaction. It's just backfired at this point. We are clearly entering a wage price spiral. Wages rose an annualized 9% last month. To suggest even a 50 bp hike would put us anywhere close to aggressive tightening is just not true. The traditional thinking is that interest rates must exceed rate of inflation to be in a tightening policy regime. The Fed pushed job market past the natural rate of unemployment, and now the only way out is a hiking induced recession. Yet instead of trying to cut off this possibility early, they'll slowly plod along until it's inevitable. There was probably a chance to short circuit the spiral a few months ago.