Good topic, and you’ve raised aspects of money supply vs money supply growth that I haven’t considered before. So, a confounding mystery to me is how have the quantitative easing since 2009 and the weirdness of spending like drunken sailors (and calling it Modern Monetary Theory) affected the relationship between interest rates and monetary policy?
The apparent consequence of MMT has been to sensitize markets to lower interest rates. This makes higher interest rates significantly more painful for markets, and is a major obstacle to the Fed executing its rate hike strategy.
The structural relationship between interest rates and monetary policy ultimately is non-existent. As Friedman argued in 1968, the Fed can't peg interest rates for too long without things going off the rails. Monetary policy will always influence market interest rates, but any effort by the Fed either to leverage a specific interest rate or to target a specific interest rate is destined to end badly.
Good topic, and you’ve raised aspects of money supply vs money supply growth that I haven’t considered before. So, a confounding mystery to me is how have the quantitative easing since 2009 and the weirdness of spending like drunken sailors (and calling it Modern Monetary Theory) affected the relationship between interest rates and monetary policy?
The apparent consequence of MMT has been to sensitize markets to lower interest rates. This makes higher interest rates significantly more painful for markets, and is a major obstacle to the Fed executing its rate hike strategy.
The structural relationship between interest rates and monetary policy ultimately is non-existent. As Friedman argued in 1968, the Fed can't peg interest rates for too long without things going off the rails. Monetary policy will always influence market interest rates, but any effort by the Fed either to leverage a specific interest rate or to target a specific interest rate is destined to end badly.
You would have made a great economics professor, Mr. Kust!