I would guess that the Fed -- led by Dubya's close friend Alan, who visits the White House more than weekly -- is going to surprise the financial markets by standing pat on August 10th. (I'll be out of the country, so I won't be able to stop them.) This policy will be justified by something international, so that it won't look like the slowth of the US economy -- and thus Dubya -- is to blame...
> On a strict
interpretation, the framework yields the implausible prediction that if the Fed
keeps the federal funds rate below the natural rate forever the economy will
grow above its potential rate forever, and that this will generate inflation
that accelerates forever.
>"There is no logical or empirical basis for
such a line of reasoning," says James Galbraith, an economist at the University
of Texas at Austin. <
I think that this scenario is crazy, even from the Fed's perspective. The Taylor rule says that if either the inflation rate goes up or GDP rises above the "potential" (corresponding to the NAIRU or natural rate of unemployment, whatever it is), then the Fed will hike the Fed Funds rate, squelching the boom.
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Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
