Greg Mankiw:The last thing we need is the perception that the Fed is caving in to political pressure. Such a perception, even if unfounded, would raise inflation expectations and make the Fed's job even harder.
To which
Megan McArdle replies:
Note to Congress: if inflationary expectations go up, the Fed has to raise interest rates in order to combat them. Thus, demanding that the Fed ease the money supply is actively counterproductive. Please stop.
It is sometimes said that economists make poor politicians, but this proves that politicians are even worse economists. No wonder
people are expecting a recession next year.
Greg Mankiw:
1 comment:
While I agree that politicians shouldn't pressure the Fed, this press release is much ado about nothing. It's been very common over the last decade or so for those in Congress to make their wishes re Fed policy known publicly. I remember several times when Greenspan was openly prodded to go one way or another.
Also, I think McArdle gets a little hyperbolic when she labels this press release as a "demand." Of course the Congressman is expressing his opinion, but it's hardly some overbearing "demand."
I think the Fed members are big boys and are used to the political pressure. I am sure they get it all the time, and moreso behind closed doors. I personally wouldn't want Fed members who are so spooked by such press releases. My guess is that the Fed laughs off these sort of things.
As for any coming recession, I don't think that is the result of any political action, but rather a natural working out of the business cycle. I for one don't think too much of most of our politicians either, but I don't want to place blame unfairly either.
Ironically, if we avoid a recession, it will largely be due to the Fed acting to ease interest rates.
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