Tornado Alley (PROG)

[fuagf]

The Power of ‘Nobody Knows’

"He is great, if you had the brains and insight to appreciate satire and good writing you would know that."

Krugman knows but omits to say people as conix, and our other trolls know. Certainty helps to keep them invigorated with righteousness. And safe.

[...]

The point is that the Obama team messed up — not by making a bad forecast, but by failing to understand that the risks of going too small were much higher than the risks of going too big.

What does that say about our current situation? Fiscal policy is pretty much off the table: Whatever the fate of President Biden’s spending plans, they aren’t likely to have much impact on short-run economic developments. So the question is about Fed policy. Should the Fed raise interest rates soon, to head off inflation, or wait and see whether recent inflation proves transitory?

There are risks both ways. If the Fed waits, inflation might become embedded, and bringing it back down again could be painful — though doable. On the other hand, if the Fed raises rates to head off an inflation problem that proves exaggerated, it could damage the economic recovery in ways that are hard to reverse. (Interest rates are still very low, so there would be little room for cuts if the economy weakens.)

So wait-and-see looks like the prudent thing to do. I think current inflation is transitory, but I’m not sure. I am, however, confident that tightening monetary policy based on what we know now would be a big mistake, because the risks of moving too soon and moving too late are highly asymmetric.

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