Fed Committee Gathers To Renew Inflation Fight
Summary
The Mortgage Bankers Association (MBA) has said it expects the Fed to continue raising the rate in 2022, reaching a target range of between 3.25% and 3.5% by the end of the year. Andrew T. Levin, an economics professor at Dartmouth College, and Mickey D. Levy, a senior economist at Berenberg Capital Markets, are both members of the Shadow Open Market Committee, a group of economists formed in 1973 to provide alternative views on the economy and Fed monetary policy. The real interest rate, however, will remain deeply negative, rendering the Fed’s monetary stance inconsistent with its inflation target. By neglecting the distinction between nominal and real interest rates, the Fed will continue to run this risk of repeating the mistakes that led to double-digit inflation in the 1970s.” The two economists say the Fed needs to clarify its strategy on inflation, “by using a simple benchmark such as the Taylor rule, a proven guideline for adjusting interest rates in response to changes in economic activity and inflation.” The rule was proposed by American economist John B. Taylor, an economic adviser to Presidents Ford and George H.W. “The Fed publishes the prescriptions from the Taylor rule and other policy benchmarks in its semiannual reports to Congress,” the economists said.