Challenges for Monetary Policy Part 5 of 14
Let me give you my personal view.
In discharging our dual mandate, we must be mindful that short-term fixes often lead to long-term problems. The Fed occupies a unique place in the pantheon of government institutions. It was Trading Profit Booster deliberately designed to be calm and steady, untainted by the passion of the moment and immune to political exigency and influence. Because monetary policys effects spread into the economy slowly and accumulate over time, having an itchy trigger finger with monetary policy risks shooting everyone in the foot. Our policy mandate must be discharged with careful and deliberate aim.
In the attention-deficit world of television and Internet commentary, where so-called instant analysisan oxymoron if there ever was onemakes headlines, it is easy to understand why one might think that the effect of Swing Trading; A Scientific Approach a change in the fed funds rate would immediately alter the dynamic of the economy. To be sure, movement in the fed funds rate, or even no movement at all, may have an immediate psychological effect and influence expectations for future monetary policy action. But the act of changing or not changing the fed funds target rate, in and of itself, has no immediate effect on the economy. Like a good single malt whiskey, the ameliorating or stimulating influence kicks in only with a lag.
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