Your fine editorial (“Global Economic Warning Lights Blinking Red,” October 17) should have gone further by questioning the appropriateness of the Federal Reserve’s newfound monetary religion.
At a time when the US economy is already showing signs of weakness and the dollar continues to soar to new highs, the Fed is tightening monetary policy at a very rapid pace not seen since the 1980s, when the Fed was led by Paul Volcker more was seen. While US and global financial and credit markets are already showing signs of significant fragility, the US Federal Reserve is pursuing quantitative tightening at an unprecedented rate of $95 billion per month by not releasing maturing Treasury proceeds back into the bond market pumps.
Knowing that monetary policy operates with long and variable lags, could the Fed now engage in policy overkill to regain control of inflation? We are already seeing cracks in global credit markets. But could the Fed create a global financial market crisis by continuing to hike interest rates and drain huge amounts of market liquidity while world financial markets lag behind?
Desmond Lachman
Senior Fellow, American Enterprise
Institute, Washington, DC, USA
Comments are closed.