Misreading the Impact of Monetary Policy
Those warning that the US Federal Reserve is dragging the economy down are deeply mistaken. Far from being too restrictive, US monetary policy is almost certainly too loose, judging by the robustness of financial markets and broader economic conditions even after 500 basis points of interest-rate hikes.
JACKSON HOLE – This year’s Jackson Hole Economic Symposium of central bankers from around the world is right to focus on the monetary-transmission mechanism, the channel through which monetary policy influences broader economic and financial conditions. Although the US Federal Reserve raised interest rates by 500 basis points between March 2022 and July 2023, it seems that little damage has been done to the US real economy or its financial system.