Re:Federal Reserve to increase interest rates by 75 basis po...
by credit_guy on Thursday September 22, 2022 @12:07AM
(#32934690)
It does not need to be that complex. It could be the interest rate where the supply and demand of money meet, assuming the Fed stays out of the way.
The Fed does not need to skew the market for money by conducting QE or QT, or manipulating short term rates.
I'm not a "no-Fed"-type of guy. The Fed is great at a lot of things. Their research arm is top-notch. They regulate and oversee banks. They are the bank of the commercial banks; in particular they are a lender of last resort for them. Also they can be a lender of last resort for US dollars for other central banks, and for the World Bank and the IMF. They can monitor and interdict financial crime. There are lots of things to do.
Stimulating the economy should not be their business.
Estimating the neutral interest rate, i.e. "the real (net of inflation) interest rate that supports the economy at full employment/maximum output while keeping inflation constant" [1], is closer to art than science. It's almost certainly not a simple historical average, particularly not in a dynamic economy.