No, The Fed And Monetary Policy Are NOT Currently “Too Tight”

Summary

The author argues that the Federal Reserve is not currently too tight with monetary policy, as some people claim.

Abstract

The author refutes the claim that the Federal Reserve is currently too tight with monetary policy, stating that short-term real rates are still negative. They argue that the people making this claim are just whining because the stock market and real estate bubbles have popped. The author also points out that the Fed's mandate is to keep inflation in check, not to prop up the stock market. They conclude that the Fed should be abolished, not because they are too tight with monetary policy, but because it's not a good idea to centrally plan money.

Opinions

The author believes that the claim that the Federal Reserve is currently too tight with monetary policy is utter nonsense and sophistry.
The author thinks that the people making this claim are just whining because they lost money in the stock market and real estate bubbles.
The author argues that the Fed's mandate is to keep inflation in check, not to prop up the stock market.
The author concludes that the Fed should be abolished, not because they are too tight with monetary policy, but because it's not a good idea to centrally plan money.

That’s complete gibberish!

This past week, I read (or heard) multiple people claiming that the Federal Reserve is currently too tight with monetary policy (i.e. too tight with money — tight money).

This is utter nonsense and sophistry.

I’ve even heard some people falsely claim that all bond maturities are positive, even when adjusted for inflation; this is not true. Short-term interest rates, adjusted for inflation, are still way in the negative: not positive!

Back to the point, why is it nonsense? Because short-term real rates–rates adjusted for inflation–aren’t even positive. How in the world can someone claim that the Fed is too “tight” when the Fed Funds rate is negative in real terms? You can’t! Because if you do say that, you are using an absurd conception of “tight.” And, if money isn’t tight, then, with even greater force, it certainly isn’t ‘too’ tight.

So, what’s really going on? What’s going on is that some people are just whining; it’s not their arguments are good: their arguments are terrible, as we’ve seen. Why are people whining? Because the stock market bubble and real estate/housing bubble popped! When people lose money, they whine. It happens when every bubble pops. If money is too “tight” for your portfolio, that is your fault. I don’t mean to sound accusatory, but just because something doesn’t go someone’s way doesn’t mean someone else (like the Fed) gets the blame; that is just a claim/assumption that’s a non-sequitur. What exactly do I mean?

What I mean is that the Fed doesn’t have the mandate to prop up the stock market. Stocks are risky for a reason; there is no guaranteed return in the stock market. The Fed’s first (and really only job) is to keep inflation in check. Given that inflation is currently high, they have to bring that down.

I can only conclude that at least some of the people who always say that the Fed is “Too tight!” have an axe to grind. And regardless of their motives, their arguments are unsound.

I’ve argued elsewhere that the Fed needs to be abolished. They should be abolished but not because they are too tight with monetary policy: they are too loose if anything. My main argument, however, is that it’s not a good idea to centrally plan money; we need to do something else — right?

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