Nominal interest rate

Trump v. Fed

Last month, interrupting decades of presidential self-restraint, President Trump openly criticized the Federal Reserve. Given the President’s penchant for dismissing valuable institutions, it is hard to be surprised. Perhaps more surprising is the high quality of his appointments to the Board of Governors. Against that background, the limited financial market reaction to the President’s comments suggests that investors are reasonably focused on the selection of qualified academics and individuals with valuable policy and business experience, rather than a few early-morning words of reproof.

Nevertheless, the President’s comments are seriously disturbing and—were they to become routine—risk undermining the significant benefits that Federal Reserve independence brings. Importantly, the criticism occurred despite sustained strength in the economy and financial markets, and despite the stimulative monetary and fiscal policies in place….

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How much is our distant future worth?

In the first Superman movie, released in 1978, Lex Luthor, the supervillain played by Gene Hackman, buys up large swaths of real estate in the deserts of eastern California and Nevada. His plan is to hijack a nuclear missile and use it to cleave off coastal California into the Pacific Ocean, leaving him with newly valuable beach-front property. Well, maybe all Lex really needed was patience, not a nuclear device...

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Inflation Expectations: How Credibility Pays Off

Monetary policymakers always worry about inflation expectations. They can’t directly observe what households and business anticipate for the future path of prices, so they construct estimates from market prices and surveys. Why do they care so much? The reason is simple: keeping inflation expectations low and stable is the first step to keeping inflation low and stable. It also makes the economy more resilient in the face of adverse shocks...

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