I repeat myself: to begin a tightening cycle and a process of interest-rate increases in December 2016–in fact, to announce in mid 2014 the end of further moves toward monetary expansion and a bias toward tightening as soon as it is not grossly imprudent–requires that one place only an infinitesimal weight on:
- Bond market very pessimistic long-run expectations.
- The asymmetry in policy responses and thus in risks created by the zero lower bound on short-term safe nominal interest rates.
I have been asking for quite a while now why any FOMC would choose to place such an infinitesimal weight not on just one but on both of these considerations. I have not gotten an answer from anywhere. I would like one. Very much…