13 May 2009

John Taylor (of Rule fame): Proper Fed Target Is +0.5%, not -5.0%

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You gotta love it. Is everyone still really confident that Ben Bernanke will suck all those reserves out of the system in the nick of time? Is it at all troublesome that Fed officials are using the “Taylor rule” to come up with a target interest rate of -5.0%, while Taylor himself thinks the proper target should be +0.5%? I’m just a lowly Austrian economist who isn’t good with numbers like the rigorous mainstream guys, but it seems like the Fed officials were off by 1,100%, assuming Taylor is right.

It would sure stink if the Fed credibly promised massive future inflation, thinking a negative real rate of interest were necessary to heal the economy.

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