Posted on 09/05/2025 2:38:29 PM PDT by E. Pluribus Unum
The central bank put its own independence at risk by straying from its narrow statutory mandate.
As we saw during the Covid pandemic, lab-created experiments can wreak havoc when they escape their confines. Once released, they can’t easily be put back. The “extraordinary” monetary-policy tools unleashed after the 2008 financial crisis have similarly transformed the Federal Reserve’s policy regime, with unpredictable consequences.
The Fed’s new operating model is effectively a gain-of-function monetary policy experiment. Overuse of nonstandard policies, mission creep and institutional bloat threaten the central bank’s independence. The Fed must change course. Its standard tool kit has become too complex to manage, with uncertain theoretical underpinnings. Simple and measurable tools, aimed at a narrow mandate, are the clearest way to deliver better outcomes and safeguard central-bank independence over time.
One might think that new tools created after 2008 and the centralization of the financial market would have given the Fed greater insight about the economy’s direction. At a minimum, all those gained functions should have allowed the Fed to steer the economy more effectively. That didn’t happen. In 2009, the Fed forecast that real gross domestic product would accelerate to 4% in 2011. Instead, growth slowed to 1.6%. Cumulatively over that period, the Fed’s two-year projections overstated real GDP by more than $1 trillion. Repeated misses demonstrate that the Fed placed too much faith in its own abilities and in expansionary fiscal policy to spur growth. When the Trump administration shifted toward tax cuts and deregulation, the Fed’s forecasts were too pessimistic, underscoring its reliance on flawed models and neglect of supply-side effects.
Successive interventions during and after the financial crisis of 2008 created what amounted to a de facto backstop for asset owners. This harmful cycle concentrated national wealth among those who already owned assets. Within the corporate sector,...
(Excerpt) Read more at wsj.com ...
Thw Fed is only magniofying some of the reasons why there should be no Fed at all nor should ever have been.
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