Fixed: “A Significant Step Toward the Entrenchment of Abnormal Dynamics”: Focus
Fixed: “Beginning the normalization of policy will be a significant step toward the restoration entrenchment of… normal abnormal dynamics
…However it is widely expected that the rate will lift off before the end of this year, as the normalization of monetary policy gets underway. The approach of liftoff reflects the significant progress we have made toward our objectives of maximum employment and price stability. The extraordinary monetary policy accommodation that the Federal Reserve has undertaken in response to the crisis has contributed importantly to the economic recovery, though the recovery has taken longer than we expected. The unemployment rate, at 5.5 percent in February, is nearing estimates of its natural rate, and we expect that inflation will gradually rise toward the Fed’s target of 2 percent. Beginning the normalization of policy will be a significant step toward the restoration of the economy’s normal dynamics, allowing monetary policy to respond to shocks without recourse to unconventional tools…
Let me say this politely.
It will not.
A Federal Reserve that seeks to create and maintain a low-pressure economy does two things. First, it makes growth inequitable by ensuring that labor has little bargaining power, and thus that the fruits of economic growth Will flow in an ever more-concentrated way toward the rich. Second, it helps anchor inflation expectations at a low level by convincing everyone that the Federal Reserve has a very low tolerance for inflation.
The participations in the Federal Reserve Open Market Committee all believe that given currency policy the “longer run” “range or target level for the federal funds rate” is lower than 4.5%. The median estimate is 3.75%.
Eight times in the past fifty years–once every six years–the Federal Reserve has wished to drop the federal funds rate by more than 3.75% as part of its management of monetary policy.
A policy that aims at a longer-run federal funds rate of 3.75% is a policy that seeks a return to the zero lower bound by 2021.
And that assumes that the liftoff is successfully accomplished, and not quickly reversed.