The Corner

Economy & Business

What Should the Fed Do Now?

Federal Reserve Chairman Jerome H. Powell meets with Australian Prime Minister Malcolm Turnbull (not pictured) at the Federal Reserve, February 22, 2018. (Sait Serkan Gurbuz/Reuters)

In a recent article for NR, David Beckworth and I looked back over the last ten years of monetary policy, arguing that the Federal Reserve has kept it too tight for most of that period. It should have kept the level of spending throughout the economy growing at a stable pace, as it had in the dozen or so years before the crisis, when spending grew at a relatively steady 5.3 percent per year. Instead spending fell during the crisis and then failed to recover to its previous trendline. Hitting the trendline would have required a few years of above-5.3 percent growth. Instead spending has risen by 3.7 percent per year.

In an informative post about the Fed’s latest meeting, Theodore Kupfer assumes that Beckworth and I want the Fed to pursue a looser policy now. We are actually agnostic on that question in the article, saying that it’s more important that the Fed commit to a sensible rule to guide its future policy than that it loosen or tighten policy now.

For much of the last ten years, any plausible rule would have counseled a looser policy. A Fed committed to a 2 percent inflation target, or to a dual mandate targeting both inflation and unemployment, or (as we’d prefer) to stabilizing nominal spending, would have followed a looser policy. But at this point, the case for more monetary expansion is a lot weaker than it was then. As we suggest in the article, it’s not clear that the Fed is holding the economy significantly below its potential by keeping monetary policy overly tight.

As we also comment, by this point the economy has largely adjusted to the new, lower rate spending growth. Spending growth during the recovery has been even more stable than it was pre-crisis. It no longer makes sense to try to return to the pre-crisis trendline. It would be better for the Fed to keep us on the current one, and commit to keeping us on it—and to getting back to it quickly in the event of a future dip.

Ramesh Ponnuru — Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg View, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

Most Popular


Two Truth-Tellers, Brave as Hell

Yesterday, the Human Rights Foundation hosted an event they called “PutinCon” -- a conference devoted to the Russian “president,” Vladimir Putin: his rise and his deeds, both at home and abroad. Participating were both Russians and well-wishing foreigners. It was, above all, a day of truth-telling -- a ... Read More
Economy & Business

The Swamp: Navarro Nucor Edition

The Wall Street Journal has a story today about the ties between President Trump's trade adviser, Peter Navarro, and the biggest steel company in the U.S. -- Nucor Corp. It is particularly interesting in light of the stiff steel tariffs successfully pushed by Navarro, which he championed ever since he joined the ... Read More


EMPIRICAL   As I can fathom neither endlessness nor the miracle work of deities, I hypothesize, assume, and guess.   The fact that I love you and you love me is all I can prove and proves me. — This poem appears in the April 2 print issue of National Review. Read More
Politics & Policy

Rolling Back Dodd-Frank

The Senate on Wednesday passed a bill that would roll back parts of Dodd-Frank. The vote was 67–31, with 17 members of the Democratic caucus breaking party lines. If the legislation passes the House and is signed, it will be the largest change to the controversial financial-reform package since it became law in ... Read More
Politics & Policy

Samantha Power Regrets

‘I’ve had a lot of bad ideas in my life,” former U.N. ambassador Samantha Power tells Politico. “Though none as immortalized as that one.” Wow. It’s a major concession. And what might “that one” be? Not standing idly by in the White House while Iranians protested a fixed election in 2009, then ... Read More