Why we need shock treatment - InvestingChannel

Why we need shock treatment



When it looked like the Fed would cut rates by 25 basis points last month, I favored 50. Next meeting they are leaning toward 50, and so naturally I favor 75.

My views might seem inconsistent, but I am consistently favoring tightening policy by more than markets expect, because the expected rate of raising interest rates is not expected to achieve on-target average inflation.

When the economy is in equilibrium, shock treatment risks pushing the economy into recession, and hence is a bad idea. When the economy is severely overheated, shock treatment risks pushing the economy back to equilibrium, and hence is a good idea.



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