The Federal Reserve Is Not Credible

Source: American Institute for Economic Research
by William J Luther

“A well-functioning central bank would anchor expectations on a long-run nominal target (e.g., the price level or nominal income) and then conduct policy in a predictable way to hit that target. Its forward guidance would be easy to follow. Fed officials would clearly indicate where its variable of interest stands in relation to the target, account for any deviations from said target, and chart a clear path back toward the target. Monetary policy would be boring. No one would even bother asking what the Fed will do in response to this or that because everyone would already know the answer. Alas, we are not so blessed. The Fed has a target. But market participants do not believe it will take the requisite steps to hit its target.” (10/01/21)