Thursday, March 1, 2018

BREAKING It Looks Like the Fed May Hike Rates More Rapidly Than Most Expect


By Robert Wenzel

Yesterday, I reported on the favorable comments about monetary policy rules that new Federal Reserve chairman Jay Powell made in testimony on Capitol Hill  (See: The Bombshell Fed Chairman Powell Dropped Yesterday on the House Financial Services Committee).

Now the Wall Street Journal is reporting that President Donald Trump is likely to nominate Columbia University economist Richard Clarida to become vice chairman of the Federal Reserve Board.

Clarida is managing director and global strategic adviser at Pacific Investment Management Co. and since 1988 has been an economics professor at Columbia, including four years as department chair.

But here's the thing.

He has published studies with Jordi Galí and Mark Gertler that suggest that monetary policy in many countries today resembles a forward looking Taylor rule, whereas the policy makers of the 1970s failed to follow such a forward looking Taylor rule, which resulted in the rapid price inflation of that decade.

Thus, we may have a chairman and vice-chairman of the Fed who lean toward monetary policy inspired by the Taylor rule.

This suggests that the current Fed may be more aggressive in hiking rates than generally believed, especially if price inflation accelerates as I suspect it will.

In the latter half of the year, we may see more rate hikes than currently anticipated and possibly rates hikes that deviate on the upside from the current 25 basis point rate hikes.

Robert Wenzel is Editor & Publisher of  EconomicPolicyJournal.com and Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. The Robert Wenzel podcast is on  iphone and stitcher.

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