These caveats are helpful, thank you. I appreciate the elaboration on changing plans for interest rates and inflation by the Fed board and changing influences by non-high income employees and people with pension plans.
I was wondering about whether I had misinterpreted OpenPhil staff’s opinion being that rich people have been indirectly influencing the Fed towards a more hawkish stance (I recalled hearing something like this in another interview with Holden, but haven’t been able to find that interview back). Either way, OpenPhil’s analysis around this is probably much more ‘clustery’ and nuanced. I would agree with you though that high net-worth individuals who have most of their capital put into ownership stakes of companies that hold relatively little cash or bonds on their balance sheets and can flexibly hike up pricing of their products/services won’t be impacted much by rising inflation.
Edit:
Economic theory doesn’t lend much support to the idea that it’s risky to have unusually large increases in the money supply. Most of the concern seems to come from people who assume the velocity of money is pretty stable. That assumption has often worked okay, but has been pretty far off in 2008 and 2020.
Good nuance re: not assuming a constant velocity of money (how fast money passes hands from transaction to transaction). What you wrote doesn’t seem to refute the argument I made concerning model error in current macroeconomic theories.
As again a complete amateur, I don’t have any comment on what range of inflation to target or what the trade-offs are, except that all else equal a 2% inflation rate seems pretty benign.
Overall, your points makes me more uncertain about my understanding of what current stakeholder groups particularly can and tend to influence Fed monetary policy decisions, and how they are motivated to act. Will read your review.
remmelt …I was wondering about whether I had misinterpreted OpenPhil staff’s opinion being that rich people have been indirectly influencing the Fed towards a more hawkish stance
Yes, at least what I wrote was too simplistic. Just found a claim on advocacy they made in their 2014 write-up:
A number of people who we spoke with noted that most advocacy on monetary policy tends to come from people who are skeptical of the Federal Reserve and want to focus on limiting inflation or return to the gold standard
Ah, and I assume NGDP means ‘nominal gross domestic product’. Why should the Fed use nominal GDP instead of real (inflation-adjusted) GDP as a measure for setting targets?
Very complicated question that I’m not at all qualified to speak on, but if you’re interested google Scott Sumner NGDP Targeting. Basically, rather than the current “dual mandate” of maintaining both low unemployment and a little inflation, targeting a fixed rate of NGDP growth would balance the mandate between unemployment and inflation. The idea became very popular in the blogosphere and in real economics literature in the aftermath of the 2008 crisis, where many believe the Fed was too slow to drop interest rates and should’ve been more concern about unemployment than inflation.
These caveats are helpful, thank you. I appreciate the elaboration on changing plans for interest rates and inflation by the Fed board and changing influences by non-high income employees and people with pension plans.
I was wondering about whether I had misinterpreted OpenPhil staff’s opinion being that rich people have been indirectly influencing the Fed towards a more hawkish stance (I recalled hearing something like this in another interview with Holden, but haven’t been able to find that interview back). Either way, OpenPhil’s analysis around this is probably much more ‘clustery’ and nuanced. I would agree with you though that high net-worth individuals who have most of their capital put into ownership stakes of companies that hold relatively little cash or bonds on their balance sheets and can flexibly hike up pricing of their products/services won’t be impacted much by rising inflation.
Edit:
Good nuance re: not assuming a constant velocity of money (how fast money passes hands from transaction to transaction). What you wrote doesn’t seem to refute the argument I made concerning model error in current macroeconomic theories.
As again a complete amateur, I don’t have any comment on what range of inflation to target or what the trade-offs are, except that all else equal a 2% inflation rate seems pretty benign.
Overall, your points makes me more uncertain about my understanding of what current stakeholder groups particularly can and tend to influence Fed monetary policy decisions, and how they are motivated to act. Will read your review.
Yes, at least what I wrote was too simplistic. Just found a claim on advocacy they made in their 2014 write-up:
Ah, and I assume NGDP means ‘nominal gross domestic product’. Why should the Fed use nominal GDP instead of real (inflation-adjusted) GDP as a measure for setting targets?
Very complicated question that I’m not at all qualified to speak on, but if you’re interested google Scott Sumner NGDP Targeting. Basically, rather than the current “dual mandate” of maintaining both low unemployment and a little inflation, targeting a fixed rate of NGDP growth would balance the mandate between unemployment and inflation. The idea became very popular in the blogosphere and in real economics literature in the aftermath of the 2008 crisis, where many believe the Fed was too slow to drop interest rates and should’ve been more concern about unemployment than inflation.
Thanks, this is clarifying