The Fed Shouldn’t Be Afraid of Growth

The Federal Reserve has intimated that it intends to keep pulling back on economic stimulus in 2017, both by raising short-term interest rates and by shrinking its holdings of long-term assets. These steps have little to do with controlling inflation. Instead, they are part of a systematically anti-growth approach that the Fed adopted four years ago -- an approach that should be abandoned as soon as possible.

Four years ago this month, Ben Bernanke (then Federal Reserve chairman) announced in congressional testimony that, if the economy continued to improve, the Fed intended to reduce (or “taper”) asset purchases aimed at bringing down longer-term borrowing rates. Since Bernanke’s announcement, the Fed has been tightening monetary policy. It ended the asset-purchase program and initiated a sequence of short-term interest rate increases.