The Federal Reserve has been slow to act for fear of market reaction. Here is proof.
- Kept balance sheet high for too long. Quantitative Easing (QE) has gone on too long.
- Drank the unemployment Kool-Aid and ignored other signals.
- Looked at CPI as temporary and ignored Wage Inflation.
- Did not increase frequency of meetings to once a month during tumultuous time.
- Reacted rather than be proactive.
- Targeted inflation at 2% when the previous 50 years averaged 2.5% inflation.
The Federal Reserve can take these steps to fix some things.
- Meet monthly.
- Reduce Balance sheet aka stop QE.
- Increase interest rates 0.25 each month and avoid 0.50 increases.
- Assume recession is coming and be prepared to stop tightening.
- Set inflation target at 3%.
- Add non-voting younger University Economics Professors to board.
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