The Fed has abandoned its own rules on "price stability" in order to favor what are essentially higher inflation targets. The Fed is now headed down a road it traveled in the 1970s.
A zero interest rate policy, unlimited asset buying, Wall Street bailouts, etc. This is a never-ending monetary accommodation that leaves you asking: What else will the Fed do after inflation averaging?
Eventually, loose monetary policy will damage real savings to the point that the economy can no longer sustain sufficient economic growth. At that point, it will become clear that money printing can't create economic growth.
The mother of all monetary stimuli could turn out to be worse than a dud—a catalyst to a slide into further recession just as the supply shock of pandemic recedes.
The most important insight of the Fed's move to increase its inflation target is this: central banks don't much like to follow "rules." They make the rules.
According to Keynesians, wealth effects result from money creation, and they have a beneficial impact. The Keynesians are right that wealth effects exist. But they're wrong about who benefits.
The largest fiscal and monetary support plan since WW II has been instigated with two dangerous collateral effects: the rise of zombie companies and the collapse of small businesses and startups.
When the current panic and crisis began, we were already in the late stages of a long asset price bubble. The crisis has exposed the fragility of the current system and we won't be going back to where we were before.
