“Melloan’s point is that when bad news in the real economy makes the markets go up, something is wrong . . . .” What that shows is that the market distrusts the Fed, expecting that good news would lead the Fed to inappropriately contractionary action.

“Melloan accuses the Fed of abandoning free markets and rigging interest rates.” That’s the Fed’s job. If you want a free market in dollars, you’ll have to abolish the Fed.

I think your comment is lacking. You’re debating semantics.”

“How can the Fed manage expectations if it is not running the economy?”

It can try to manage expectations. It might succeed or fail. It can “manage” credit markets. Why the need for hyberbole like “running” the economy?

Does the government “run” the economy via fiscal policy? It interacts with the private sector via taxes and spending.

“Each time monetarists are asked to show mechanisms they either invoke some stuff that is experimentally not detectable (expectations Imp) or mechanisms that cannot work in the real world (like the hot potato effect or the money multiplier effect).”

The evidence I have seen is that whenever inflation expectations have dipped in recent years, the Fed has done a QE and they went back up. Of course correlation is not causation but still.

Above the zero bound, the Fed lowers interest rates to help boost spending and boost demand. QEs are just a different way of doing this.

I don’t see how you can argue that the Fed has not had an effect on the economy these past 4 years.

“What makes any rate the Fed chooses rigged or otherwise?”

I’d be curious to hear you answer your own question.

What is the gender make-up of the House Ways & Means Committee? After all tax policy is made there. And the Senate Budget Committee?

One problem: When Arthur Burns declared defeat in the Fed battle against inflation, I think the FOMC was all male, back in the 1970s. Maybe Melloan thinks there is a correct balance of men to women on the FOMC that must be reached….

Actually, whoever Melloan is, I sense he is grappling for traction, but can’t find any. His op-ed seems adrift, calls for higher interest rates to promote growth?

Why are Treasury auctions oversubscribed? Supply and demand? What makes any rate the Fed chooses rigged or otherwise?

Is Melloan short the bond market?

Or does Melloan just feel good at pompously pettifogging against loose money, the sort of declaration one can make when actually insights are lacking…..

Each time monetarists are asked to show mechanisms they either invoke some stuff that is experimentally not detectable (expectations Imp) or mechanisms that cannot work in the real world (like the hot potato effect or the money multiplier effect).

First of all, thank you for making a subject that I once thought rather dull far more interesting than I previously imagined. Good stuff.

By temperament and training I’m an applied math & science geek. From that perspective, it isn’t hard to follow what you’re saying and apply the kind of first-order sanity check that I’m used to doing with any sort of systems analysis problem. It all makes good sense to me. What I can’t understand at all is where people like Melloan are coming from.