Thursday, September 22, 2011

Yes, Monetary Policy is Important!

That's what markets are screaming right now. If monetary policy was out of bullets, the markets wouldn't react to a disappointing Fed meeting.

As I said previously,

Any kind of a long term anchor (explicit NGDP/CPI targeting) or adjustable policy (changing IOR or asset purchases monthly based on the latest data) will be more effective  than ambiguous and rigid policies (QE2, keeping the Fed Funds rate at 0% for "an extended period of time")

"Operation Twist" is even worse than QE2 or commitments to keep the Fed funds rate at 0%. Is it any wonder stocks, commodities, interest rates, and inflation expectations are plummeting?

We are in scary territory.

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