There is a lot of talk about the precarious situation the U.S. Federal Reserve is in these days. To borrow the analogy of the day, Ben Bernanke, the Fed’s chairman, is walking a tightrope between the competing demands of economic growth and inflation.
Enough, argues James Hamilton, professor of economics at the University of California, San Diego, on Econbrowser. The tightrope analogy is misleading because it implies there is an ideal solution for the Fed, in setting its key interest rate, that will accommodate both demands.
“In my opinion, there is no such ideal target rate, and the notion that we can address the difficulties with a sagely chosen combination of monetary and fiscal stimulus and regulatory workout is in my mind doing more harm than good. Better for everyone to admit up front just how bad the problem is, and acknowledge that there is no cheap way out,” Mr. Hamilton wrote.
“No, I don’t believe that Bernanke is walking a tightrope at all. But I do hope he’s checked out the net that’s supposed to catch him if he falls.”
