I see a lot of people in the media gushing about all of the actions that the Fed has recently taken. The Fed has been unusually active, but it’s important to always keep in mind that what matters is output, not inputs.
If NGDP growth is inadequate then monetary policy is too tight, regardless of what the Fed is doing. This isn’t the Boy Scouts, there are no badges earned for effort.
I don’t expect the Fed to maintain steady NGDP growth during the current lockdown, but we absolutely should expect expected NGDP a year or two from now to be on target. In my view, the current market expectation for NGDP in 2021 and 2022 is lower than we would like (although it’s hard to be sure.)
So while the Fed has appropriately been very active in various stimulus measures, let’s hold our applause until we see various futures markets provide evidence that expected NGDP growth is on track.
Printing money is basically costless, and requires essentially zero effort. All that matters is whether they’ve printed enough and whether they are aiming at the right target. Right now, I’m not convinced on either count. The Fed needs to announce a level targeting policy regime and they need to generate bigger TIPS spreads.
PS. Stephen Kirchner interviewed me a few weeks ago: