Words Are Policy
Price Instability
Ideas Have Consequences
“One Hell of a Dilemma”
The Unintended Consequences of Federal Reserve Policy
Puerto Rico and Lockdowns

One little-noted aspect of central bank policy is how rarely “policy” happens. Officials at the Federal Reserve and elsewhere long ago learned how to achieve their goals without actually doing anything. Creating perceptions is often enough to modify people’s behavior.

For instance, if traders simply believe the Fed will intervene should interest rates go above or below a certain level, rates probably won’t breach that level, or even get close to it. No one wants to make the Fed pull its trigger. This is why central banks are so obsessed with “credibility.” They don’t want to actually use their monetary firepower, and they don’t need to use it as long as financial markets respect it. Their most-used weapons are just words.

We saw another example in late August when the Fed unveiled changes to its long-term monetary policy strategy. Among other things, they now say they will let inflation “run hot” for extended periods in order to achieve a 2% long-term average. Reasonable minds can differ on whether that’s a good idea, or whether the Fed can actually do it. But the Fed certainly wants us to believe its new plan. We know this from the enormous effort placed on communicating it.

The problem is that one person’s “policy” is another person’s unintended consequences. Today I want to argue that the unintended consequences from recent Fed “policy” changes, not to mention those initiated in prior decades, have been at the very epicenter of some of the national problems we have. The Fed would vigorously deny this course, but the results are plain for all to see.

We’ll begin with how some of my trusted sources view this Fed move. But first, I’ll let the Fed speak for itself.