Category Archives: monetary policy

Trump’s Taylor Rule

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Co-authored with Sohaib Nasim

July 31, 2025 — Donald Trump has now gone beyond his usual norm-busting habits in his criticism of Federal Reserve Board Chair Jay Powell.  He has harassed him to cut interest rates by 300 basis points, has heaped abuse upon Powell personally, has trumped up accusations regarding the remodeling of the Fed’s building, and has gone so far as to draft a letter to fire him.   (That is, to remove him from the chairmanship.  Even Trump must realize that he doesn’t have the legal power to remove Powell from the Federal Reserve Board altogether.) read more

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Does the Fed Deserve Credit for the Disinflation?

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November 19, 2023 —  The Bureau of Labor Statistics on November 14, remarkably, announced that the US CPI had been unchanged in October (whether seasonally adjusted or not).  That is, the level of the CPI was unchanged, not the inflation rate, which was zero.  Of course, single-month numbers are too volatile to draw much of a conclusion.  Not every month will see the price of gasoline plunge by 5.0 %, as it did from September to October.

More informatively, the headline CPI inflation rate over the last 12 months was 3.2 %, far down from 6.5 % in 2022.  At the risk of tempting fate, one might say that the inflation battle is being won. read more

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The End of Zero Interest Rates?

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August 14, 2023 — What a difference a year makes!  In 2021, interest rates were close to zero in the US and the UK,  and slightly negative in the eurozone and Japan.  They were expected to remain low indefinitely.  Remarkably, as recently as January 2022, investors thought that the probability the interest rate would rise above 4.0 % within 5 years was only 12% in the US, 4 % for the euro-zone, and 7 % for the UK [p.45].  Those were short-term nominal interest rates.  Correcting for expected inflation, real interest rates were substantially negative and expected to remain so. read more

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