By Frank Shostak
Although Federal Reserve policies are claimed to try to target the neutral rate of interest, it is not possible for that to be accomplished through monetary central planning.
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By Frank Shostak
Although Federal Reserve policies are claimed to try to target the neutral rate of interest, it is not possible for that to be accomplished through monetary central planning.
Yeh, I mean, I always thought the framing is weird. The "natural" or "neutral" rate should simply be whatever rate is set in a competitive market for money.
But I think since central banking is already a feature of our world, the bank is forced to consider that question because like it or not they set the baseline rates in the economy, not a competitive market.
I've never thought to deeply about it, but the question of what the Fed should do, given that it can't simply shut itself down, is interesting.
Path dependence probably deserves more attention than it gets.
Even if every single economist at the Fed said, "We've decided the best course of action is to shut the Fed down," you'd still get a bunch of pols and business execs opposed to it, simply because their plans were optimized for a world in which the Fed exists.