Jim Jubak Must Think We are at Full Employment
Jubak opposes the current expansionary monetary policy:
Do the members of the Federal Reserve think we’re stupid? Do they think we don’t understand that their quick fix for the economy and the financial markets in 2008 is going to completely unravel in 2009? Do they think we can’t see that they’re setting up the economy and the financial markets for a replay of the bust-to-boom-to-bust cycle that followed the bursting of the stock market bubble in 2000, in which easy money created a housing bubble that has now burst?The Fed’s actions of the past five months are going to lead to higher inflation or higher interest rates (and a slowing economy again) in 2009. Apparently the Fed doesn’t think we can read between the paragraphs of its Jan. 30 press release and see that coming.
I suspect one can find a lot of pundits who are making this kind of argument. Now if one believes in the new classical proposition of instantaneous market clearing where money can only affect real outcomes by creating unexpected (dis)inflation, then what Jubak argues makes sense. If one thinks we are at full employment and are not likely to suffer from an insufficiency of aggregate demand, then he might have an argument. But I find either proposition implausible, which is why I think the Federal Reserve is doing the right thing.