There is no good argument for the NeoFisherian claim that rising nominal interest rates represent an expansionary monetary policy. But if forced to defend that position I would focus on long-term interest rates. That’s one area where the NeoFisherians are usually correct. Long-term rates are more likely to reflect the condition of the economy (expected NGDP growth), while short-term rates are more likely to reflect the liquidity effect of monetary policy.
I think it’s safe to assume that SF Fed President Mary Daly is not a NeoFisherian:
San Francisco Fed President Mary Daly said that recent rises in bond yields were akin to a rate hike.
Daly said increasing bond yields showed that financial conditions were tight, “diminishing” the need for further Federal Reserve interest rate hikes.
Milton Friedman had a very different view:
Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy. . . .
After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.
Nick Rowe has suggested that one argument against NeoFisherism is that Keynesian central bankers seem to know which way to turn the steering wheel. After all, inflation in places like the US and Canada has averaged about 2% since 1992. That’s probably not a coincidence.
But it’s worth noting that central banks don’t always get it right. And some of their biggest policy errors occurred during the 1960s and 1970s, when they assumed that monetary policy was contractionary because interest rates were high.
God help us if the Fed views rising long-term interest rates as a reason not to tighten monetary policy.
PS. That’s not to say we necessarily need tighter money—a debatable point. But rising bond yields are not a reason to be complacent.