“Yesterday, I said the only thing that saved the nation from collapse in 1987 was the intervention of the Federal Reserve. Today, I think that statement was the understatement of the century.
It is worth noting that contrary to the willful misperception of the president of the United States that the Fed has been the same government since 1837, the institution has been around since 1913. In the intervening years it has constantly revised its mission.
More recently, some of its leaders have elected to rebrand themselves as advocates of free markets.
Personally, I don’t see how taking a free-market approach to monetary policy is related to preventing the next crisis. In fact, I suspect that the administration of Calvin Coolidge said that the Federal Reserve had a secondary and largely insignificant role in suppressing inflation. (I note his recommendation of a symmetrical target, rather than a loose one.)
Hence, I disagree with the assertion of my good friend and co-author, Ed Leamer, that “no administration would seek such an interventionist action today.”
I still support modern monetary policy in much the same way that I supported it in 1987. But I do not see how it can be explained as safeguarding the American economy against collapse. To that extent, I think the president’s speech yesterday was the understatement of the century.
As to the E3 and Q2 they say, those are temporary programs. As one of them famously put it, they are to buy bonds not to make them cheap, but to make them cheap enough to buy them. Whether or not Mr. Trump means to say that he intends to continue buying bonds as he claims he will do in the next budget year is yet to be seen.
Two months ago, the president told me that he was going to order the establishment of a production line for bringing back manufacturing jobs to the United States. I guess this would be a step in that direction. And it would be very good for the manufacturing base.
But does the president now believe that the Federal Reserve, which is constantly faced with this problem, is the one who is trying to keep interest rates low enough to keep manufacturing jobs here? Are our interest rates today already low enough?