, Columnist
The Fed Thinks It’s Fighting Inflation. Think Again.
Even at more than 5.25%, the central bank’s short-term interest-rate target might not be high enough to cool the economy.
How high is high?
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To a large and under-appreciated extent, the job of the US Federal Reserve entails chasing an elusive number: r*, or the neutral short-term interest rate. When the Fed’s target rate is above r*, it should restrict growth. When it’s below, it should stimulate economic activity.
I think r* is a lot higher than the Fed recognizes — which means the central bank isn’t doing enough to fight inflation.